Posted: 7/13/2008 2:19:14 PM EDT
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After reading the last price gouging thread and how it wandered into allegations of price gouging in New Orleans, I wanted to ask a related, but more specific question. I am interested in the morality of "price gouging" as it relates to necessities. Here is the scenario. Big Drug Company, Inc., invents a new cancer treatment for a form of cancer that has previously been virtually untreatable (95% death rate). The new treatment is 99% effective, even for those with late stages of this form of cancer and those who were unresponsive to the other treatments. Big Drug Company obtains a patent on the new drug in every country in the world that offers patent protection. They are the only company in the world that can manufacture the new drug. As a practical matter, their is no limit to what Big Drug Company can charge for this drug. If you have this form of cancer, you will very likely die without this treatment. How much is your life worth? If Big Drug Company charges a price above what is necessary to recover ALL of their research (including costs for other failed projects), manufacturing, and related costs, are they "price gouging"? Second question, are they acting ethically? On a free market level, I do not believe that price gouging really exists. Whenever we have a willing buyer and a willing seller, we have a market price. The ethics issue is much less clear to me. |
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There is some value for X number of customers * Y price that yields the greatest value. Obviously as price increases, sales decrease (within reason - there is likely a point where the price will be low enough that everybody seeking treatment could afford it, while if it was increased dramatically only a handful of immensely rich could afford it). This is the ideal price for the company to offer the drug at. However, there is a value to public opinion. Perhaps the company has a negative image, and releasing the drug at a lesser price would be more valuable? The question is whether it is worth sacrificing profit (or increasing losses, quite possibly) for that fame. |
| I would say that they should charge enough to make all their money back that they spent on research, employees, equip costs, trial errors, animals they tried it on, then after they are making free money, just make enough profit on it to make it a money maker but just that, do not inflate it to 1,000,000,000 % |
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Such drugs are carefully marketed using cost of development/production compared to the market size. They are very sensitive to pricing themselves out of business. But for other drugs...drugs that treat chronic but non-life threatening conditions like ED, RLS, insomnia, GIRD...the profit margins are obscene. And well-served as most anti-neoplastic chemotherapeutics are sold at cost. Even less for foreign license and in many cases, they are loss leaders. |
Will it pay for the next "wonder drug"? |