What's Fair About Price Discrimination in Pharmaceutical Markets

Byadmin

underground economistA while back, DVD companies hoping to sell their products in countries like Poland faced a dilemma.  They could sell their products at a nice profit in the booming U.S. market, but to sell products in those other countries, they had to lower their prices.  Such variable pricing is a common business practice.  All kinds of services are less expensive in Poland than in the United States.  An hour with a psychotherapist or personal trainer, for instance, is significantly cheaper in Warsaw than in New York City.  But small, non-perishable products like DVDs create big problems for manufacturers.  If the going price of such a product is significantly lower in Poland than the U.S., savvy business people will purchase large numbers of DVDs in Poland and ship them back to the United States to sell them for a hefty profit.  They can’t do the same with personal trainers or psychotherapists, to the chagrin, no doubt, of some people in those professions.

So DVD manufacturers came up with a clever idea.  As Tim Harford describes in his book The Undercover Economist: “The DVD industry agreed on a system of regional coding so that DVDs bought in the U.S. would not work in Europe,” and vice versa.
When some people found out about this arrangement, they were creeped out.  It seemed like the companies were up to their slimy old tricks.  How dare they doctor a DVD so that an honest consumer can’t play it on his or her DVD machine?  It felt like the DVD manufacturers were getting greedy.  If they were willing to sell DVDs at that price in Poland, after all, then clearly such lower prices must still be profitable.  Why wouldn’t they sell DVDs at that same price in the United States? …(Read  more and view comments at Forbes)

Similar Posts

  • Is It Wrong for Medical Students to "Tattle" on Their Supervisors?

    Byadmin

    Alex, a third-year medical student, is in the middle of his surgery rotation. He frequently finds himself rather shocked by some of the unseemly remarks that his attending, Dr. Tate, makes during surgery and between seeing patients on rounds. A highly respected surgeon, Dr. Tate is personable with patients and well liked by them, but…

  • These Americans Are Rich – Should We Celebrate?

    Byadmin

    American manufacturing has declined precipitously in the past few decades. Companies that were once the source of fabulous wealth for Americans – the U.S. Steel profits that enriched the Carnegie family, the Ford Motor F -1.29% Company profits that enriched its eponymous family – are now struggling to keep up with foreign competitors. Thank God…

  • Great Writing, But Not by the Author of the New Thomas Jefferson Biography

    Byadmin

    Jon Meacham’s best-selling biography, Thomas Jefferson: The Art of Power, is at best a solid read, presenting the basic facts of Jefferson’s life competently but with little grace and an almost invisible point of view. Perhaps I have been spoiled by Robert Caro’s amazing series of books on Lyndon Johnson, four volumes so far that not only make Johnson come to life (his ruthless genius as well as his fascinating contradictions) but also illuminate a whole era in U.S. history, all the while enveloping readers in gloriously rhythmic paragraphs. It is not fair, perhaps, to compare any biographer to Caro. Meacham’s book, after all, is just a single volume, so it cannot explore Jefferson in the same depth that Caro portrays Johnson. Meacham also had the disadvantage of writing about a man who lived a couple hundred years ago, whereas Caro could interview people who knew the subject of his biography firsthand. In addition, Meacham is a busy man, running a publishing company and appearing on television shows, whereas Caro lives the life of an obsessive, dedicating the better part of his adult life to understanding the ins and outs of Johnson’s life.
    Nevertheless, if you are going to write a book about an American president and subtitle it “The Art of Power,” you better expect some Caro comparisons.
    As it turns out, however, being compared to Caro is the least of Meacham’s writerly problems. Because there is another great writer that readers won’t be able to ignore when making their way through Meacham’s book. That writer, of course, is Thomas Jefferson.
    I’m going to give you a sprinkling of Jefferson’s prose in a bit, and follow-up later this week with several other great Jefferson quotes. But first, a little bit more on Meacham’s book. I was really disappointed, because in Meacham’s hands, Jefferson rarely comes alive on the page. Time passes by and suddenly the reader realizes: “Jefferson just became governor of Virginia? Was that something he was trying to accomplish? Which of the arts of power did he employ to reach that position?” Meacham never provides answers to these kinds of questions.

  • |

    American Physicians Lack Diversity— Here’s One Way to Change That

    Byadmin

    African Americans make up 13% of the country’s population, but only 4% of American physicians are black. This lack of racial diversity in the profession is tragic, denying this prestigious career to many worthy people and undermining the health of many African Americans, who are more likely to receive important medical services when they’re cared for by black…