Explain price determination in perfect competition of medicines
during Covid-19
Answers
Answer:
How Do We Arrive at Fair Pricing for COVID-19 Therapies?
June 16, 2020 The Petrie-Flom Center Staff Bioethics, Health Law Policy, International, Pharmaceuticals, Public Health
By Padmashree Gehl Sampath
As the search for COVID-19 treatments and vaccines continues, questions of pricing and access are beginning to emerge.
How can pharmaceutical companies determine fair prices for these therapies? And how can they ensure that all those who need these treatments are able to access them? These are valid concerns in the current global pharmaceutical landscape, where in recent years, soaring drug prices have been an issue for almost all governments.
In 2019, the World Health Organization adopted a landmark resolution titled “Improving the transparency of markets for medicines, vaccines and other health-related technologies.” Its intent was to encourage pricing in the interest of consumers by promoting information-sharing on the patent landscape for medical technologies and manufacturing costs for medicines, vaccines, and health technologies
The call for greater public disclosure of prices for medicines and other health products has been countered by industry, which suggests that access does not depend just on price, but on health systems, supply chains, and health coverage. It is true that access to medicines is indeed affected by all of these parameters. But such a position also deflects from the wider reality of the current situation. Pricing of pharmaceutical products matters for access. It cuts people out even in countries with strong health systems, as mounting evidence from therapeutic categories such as cancer suggests. Recent research conducted by the Global Access in Action Project (GAiA) of the Berkman Klein Center for Internet and Society points to pricing realities that are far more complex in practice.
Our work shows that firms have frequently engaged in price discrimination — offering different prices in different markets. While some tiered pricing strategies have helped increase access, many others have not.
In a recent paper, we find that inter-country tiered pricing strategies have been relatively ineffective when compared to competition, as some other studies have previously concluded. The insights of our paper further identify the reasons for these limitations: (A) firms price differentiate on the basis of country classifications (low, middle and high), which fails to take into account the fact that seventy percent of the world’s poorest live in what are classified as middle-income countries. (B) Voluntary mechanisms through which firms offer tiered prices (without regulatory oversight) are not conducive to access; and (C) the lack of information available on the price discounts offered and the countries to which they are offered, and the role of patents in extending monopolies often vitiate the possibility of structuring more open mechanisms that can set and monitor price.
Some of these market failures — particularly those that stem from the inability to pool consumers accurately according to their ability-to-pay thresholds, and those emerging from companies’ voluntary pricing schemes — can be avoided by structuring intra-country pricing strategies that cater to specific groups of consumers within each country, as a larger body of work conducted by GAiA shows. With such a strategy, governments would work alongside companies to ensure that prices are more affordable to all within national parameters, thus allowing for the emergence of ‘win-win’ outcomes. This could especially be relevant in those therapeutic categories where competitive products are not available.
The notion of a fair price has a moral underpinning, which is not just about the end price but also about organizing the industry in a way that addresses access. Resting on the premise that both the innovators of health technologies and the patients who need them most should be treated ethically, a fair price is one that is at once affordable and able to provide the required market incentives for innovators to recover their R&D investments.
Although we may never be able to narrow down precisely what a fair price is, there are clearly ways to identify when a fair price for fair access has not been set. It is time for us to at least set out what is unacceptable. In the context of COVID-19:
it is not fair pricing when the industry charges the same price, or just two categories of prices – low and high – across the board, without transparency, as frequently observed in the pricing of other important therapeutic categories;
it is not fair pricing when vaccines and drugs are stockpiled by some, but are not available equally and at affordable prices to all;
it is not fair pricing if some countries have to wait years for the large-scale introduction of a vaccine or successful therapy when it becomes available.
Most importantly, it is not fair pricing when just one firm, or a select few firms, can determine global welfare without consultation.
Answer:
It important to understand that covid-19 medicine market is not a perfection competition.
Perfect competition assumes (amongst other things) that there shall be no barriers in terms of technology, social and legal barriers regarding the manufacturing and supply of the product.
Covid vaccines wont have this market situation because of the technological barrier.
It is more like to lead into other forms of market structure like monopoly, oligopoly or monopolistic comp.
To answer price determination of the medicines,
Perfect competition are generally controlled by market forces of demand and supply only, since pandemics are a matter of national and international health interests, simple market forces of demand and supply wont be sufficient. Governmental forces will intervene.
Price would determined by other forces in the market, not simply demand and supply.