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Robert DavidsonProfessor Kerry MacNamaraEconomics 201030 April 2017Price Ceilings Versus MonopoliesMylan, a pharmaceutical company, acquired the EpiPen product in 2007. When acquired in 2007, the EpiPen product could be acquired for less than $100 per pair from pharmacies. This price has experienced what seems to be exponential growth since the takeover. As reported by Elsevier Clinical Solutions’ Gold Standard Drug Database, in May 2016, the EpiPen reached a new height of $608.61 (Parker-Pope & Peachman 2016). Doctors do advise availability of two EpiPens in case a stronger dosage is required. Individuals usually possess several sets and store them in frequently used locations such as homes, work spaces, vehicles & schools. This can become very expensive as EpiPens are recommended to be annually repurchased due to expiration. Mylan does offer a coupon for $100 per set which does allow most consumers to purchase at least one discounted set. Many customers end up paying close to the full price due to poor insurance and large copayments. These prices are causing many to risk their lives by delaying or forgoing the purchase of new EpiPens and relying on their expired ones. Because of a lack of sufficient substitutes for the EpiPen, consumers are forced to pay Mylan’s soaring prices to simply protect their lives.Mylan owns the EpiPen patent and has patent protection that lasts through 2025 (Keshavan 2016). Others have tried to create a reliable, cost effective system that administers the epinephrine but the process proves to be slow and expensive. Even with the price gouging from Mylan, consumers have not slowed their purchasing of the EpiPen. Economists measure this with a function of Price Elasticity of Demand. Price Elasticity of Demand can be defined as “the responsiveness of quantity demanded of a good to changes in its price.” Because of the lack of substitutes for EpiPens, the price elasticity of demand is almost perfectly inelastic. In the case of the EpiPen, even though the price is almost six times greater than it was 10 years ago, the quantity demanded has not reflected this change. Consumers cannot afford to not afford the EpiPen. If there is only one product available that can save the consumer’s life, they are going to buy that product no matter what the price. If other pharmaceutical companies could produce a cheaper product and have it approved by the Food and Drug Administration (FDA), then they would qualify as a substitute. This substitute would cause the EpiPen to no longer be inelastic as price changes would now affect the quantity demanded. Most consumers would no longer purchase the EpiPen because of the cheaper substitute and Mylan would be forced to lower their prices or lose their customers.Mylan has safely raised prices over the past 10 years because of the virtual monopoly that they have in the epinephrine injector market. To have a monopoly on the market the supplier needs to have the sole good or service with no close substitute. Not only does the EpiPen control over 90% of the epinephrine market, it also is a vastly superior product (Emanuel 2016). The closest competitors are rarely recommended or even mentioned by physicians due to their ease-of-use or lack thereof. This lack of competition in the market is contributed to by the fact that Mylan have four EpiPen patents protected until 2025. These patents are large factors to why Mylan can control the entire industry. Patents are intellectual property that are enforced by the Federal Government signifying that while Mylan hold their patents, competitors will find it almost impossible to create a substitute.The Food and Drug Administration (FDA) also inadvertently helps Mylan maintain their monopoly through high standards of drug approval. The Federal Government created the FDA to control drug distribution by determining a standard and series of regulations in purpose of protecting the people. If another firm wants to provide a good competing with the EpiPen, it must first be approved by the FDA. While this does protect the people, it can be a factor in the creation of a monopoly in a free market. One suggested solution is that the Food and Drug Administration should create price ceilings for inelastic drugs. The argument being that this would protect the people from “corporate greed.” This seems an obvious solution but it also doesn’t address the initial problem. This initial problem being the lack of competition to the EpiPen. In a similar fashion to Mylan’s EpiPen, Daraprim (a 62-year old drug that combats the toxoplasmosis parasite) prices sky rocketed after a management change (Apothecary 2015). Martin Shkreli, Former CEO of Turing Pharmaceuticals (supplier of Daraprim), adjusted the price of his drug seeing very little change in demand. The differences between these two cases is that Turing Pharmaceuticals do not own any patents on Daraprim. This enabled competitors to provide substitutes to Daraprim but none entered the market. This is because of the regulations created by the FDA. To enter the market, competitors must provide a product quickly if patients are to benefit from competitive prices. Price ceilings are not a solution but a temporary fix to a growing problem. The Food and Drug Administration needs serious reform and barrier reduction for a more competitive environment to exist in the free market system. Competition creates elasticity for goods and services that benefit the consumer, which fulfills the initial goal of the Food and Drug Administration by protecting the people.Works CitedApothecary, The. "Martin Shkreli A Creature Of FDA Regulation, Not Pharma Industry's Greed." Forbes. Forbes Magazine, 30 Sept. 2015. Web. 30 Apr. 2017.Emanuel, Ezekiel. "Don't Only Blame Mylan for $600 EpiPens – Fortune Insiders." Fortune Insiders. Fortune Insiders, 08 Sept. 2016. Web. 30 Apr. 2017.Keshavan, Meghana. "5 reasons why no one has built a better EpiPen." STAT. STAT, 09 Sept. 2016. Web. 30 Apr. 2017.Parker-Pope, Tara, and Rachel Rabkin Peachman. "EpiPen Price Rise Sparks Concern for Allergy Sufferers." The New York Times. The New York Times, 22 Aug. 2016. Web. 30 Apr. 2017. ................
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