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Price Discrimination

Very interesting post about price discrimination:

The WSJ had an article now about drug pricing and the power that big purchasers have with the drug manufacturers. The article got me thinking: Am I the only one who cares that small retail pharmacies (to the extent that they still exist) get the short end of the stick with drug manufacturers (or have historically, anyway)?

A nice example, albeit dated, deals with birth control pills. Most colleges sell to their students birth control pills at somewhere around $10 per package. The colleges get their birth control pills for perhaps $5 per package. The retail pharmacy on Main Street, however, gets the pills for $14 per package, and it sells for $19 to the person with insurance and $38 per package to the person without insurance. How is that fair? There is no way the retail pharmacy can ever compete with the University pharmacy (or the Wal-Mart pharmacy, that likely gets a equally significant discount).

The birth control pill manufacturers typically evade antitrust scrutiny b/c they maintain that they are giving the university a volume discount. Last I checked, however, most antitrust lawyers agreed that the true volume discount in situations like that was nowhere near the discounts universities, Wal-Marts, etc. were actually being given. The discounts given were far larger than the discounts that could be justified on a basis of costs saved due to volume purchases. Yet nobody squawks.

On a related note, why is it that I have to pay $75 for my doctors appointment if I miss it and dont call to cancel, but, if I had actually gone to the appointment, my insurer would have only been billed $48 or some such? I realize that my insurer has negotiated better prices with my doctor than have I, but why is that not price discrimination in violation of the Robinson-Patman Act? Where are our antitrust lawyers? I cannot believe that the volume discount math really works out in this case - my gut instinct is that the doctors are just caving to the insurers and sticking it to the poor individuals when insurance does not apply.

In my pursuit to be like Harvey Goldschmid, I have long wanted to teach antitrust, but Richmond could not really afford to have me give up a corporate class to teach antitrust. Hopefully, if I were teaching antitrust, I could answer my doctors appointment question myself.

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