What is Pharmaceutical Price Gouging?

Understanding Price Gouging

The U.S. Pharmaceutical industry is often accused of price gouging due to extreme cost of medications. The Pharmaceutical industry would argue prices are high when initially introduced to the market but then slowly lower to make the product available to a wider market. The object of this pricing strategy is twofold. The initial high price is intended to offset the production cost of developing the drug. The second objective is to skim profits from the market layer by layer moving through different socioeconomic brackets. This maximizes profit across the product life cycle.

The consumers would see the pricing as price gouging. The company is producing a product that can be sold for lower prices but is taking advantage of the market because there are few entrants from external competitors. A clearer example of pricing gouging can be seen in the Pharma Bro case in which a drug already on the market for a lower price, which had no generic versions, was increased in price to for consumers to pay.

References

Sarah Kliffsarah. (2015). Martin Shkreli raised his drug’s price 5,500 percent because, in America, he can.