Question

Consider the political and financial might of the pharmaceutical, medical device, and insurance industries in the United States. What do you think would happen in the United States if we attempted cost control? What would work to control costs?

Answer 1

The following can happen if the government attempts to price control:

1. The supply of goods and services, provided by the industry will decrease, causing shortage and these device will be sold using black market at a higher price. It will further increase the welfare loss.

2. Interest groups and political lobbying will begin in favor of the concerned industry regarding the price control being exercised by the government with a focus upon the huge investments made by the companies in R&D work and a higher probability of the failure.

3. Price control will discourage the firms from making investments in R&D work, innovation and patent creation will decrease.

4. Firms in the industry would threaten to overseas to the locations of low cost labor where the cost of production will be relatively lower. It will decrease the number of jobs of the industry in the USA. So, job market is bound to suffer.

For effective control upon the cost, the government should build trust, give benefits or incentives in taxation and or help in R&D work using the grants. These benefits are to be negotiated with the reduction in cost of goods at which, it is made available to the people. Further, the government can ask for the categorization of the goods and services so that people should not pay unnecessary higher cost even if their needs are not so high. Besides, the government should ask the firms to take care of poor and marginalized people through a channel of corporate social responsibility and community development projects. It will lower the cost level and help the government achieve the objective.