Question

If you represented an insurance company or competing pharmaceutical manufacturer, how would you respond to the drug price increases imposed by Turing Pharmaceuticals? Given the absence of limitations on how much a company can charge for a given product, does the increase in the price of Daraprim create justification for the imposition of price controls at times? How does this intersect with the idea that a free-market economy dominates in America?

Answer 1

Given that America is dominated by a free market economy. In a free market economy,the price is decided by the market forces - supply and demand and the government has little (or) no control.So based on the political and legal conditions / regulations the economy can either function very efficiently (or) become completely inefficient like parallel / unofficial / black market

Also,given that there are no limitations on how much a company can charge for a given product i.e., no price control regulations by the Federal Government.So,if the supply is lesser than the demand in the economy (or) at least if the situation is such that Torrent Pharmaceuticals alone cannot service the entire demand in the industry then the competitor will definitely go ahead and increase the price because he know that there will be demand for his products.In this process,the company will make more profit than torrent on each dosage of medicine sold.If this very same situation prevails,it will result in  spiraling effect leading to increasing in the prices of the Daraprim medicine in the industry.

Insurance companies will increase the premium charged to the customers citing the rise in the price of the medicines.

Due to the above situations,the healthcare will slowly turn inaccessible to the American Consumers.

So,the government should intervene before this situation worsens and should place the price controls.

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