“Mylan NV raced Thursday to counter a firestorm of criticism over its pricing of
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Question
“Mylan NV raced Thursday to counter a firestorm of criticism over its pricing of lifesaving EpiPens, saying it would help more patients cover their out-of-pocket costs. But the drugmaker didn’t lower the list price, and its stranglehold on the market means it is unlikely to face competitive pressure to do so.
EpiPen, whose list price has climbed nearly 550% over eight years, dominates the more than $1 billion market to treat serious allergic reactions because of Mylan’s effective marketing and lobbying, aggressive defense of its turf and the relatively high costs of manufacturing such sterile injections, analysts say.
A backlash over Mylan’s pricing tactics is shedding light on its grasp of the market. On Thursday, after politicians, physicians and lawmakers criticized the price of EpiPen, Mylan offered to provide more financial help to patients, saying it would cover their insurance out-of-pocket costs up to $300, from $100 previously. It also said it would expand the number of low-income patients eligible to receive company subsidies. But the company didn’t roll back EpiPen’s high list price.”
The Wall Street Journal, Aug. 28, 2017
SHOW WORK
What factors have contributed to Mylan's ability to raise price?
Why would Mylan subsidize insurance out-of-pocket costs while not lowering the price of the company's EpiPen?
What is the relationship between the price elasticity of demand for a product and the revenue-maximizing price of that product?
Explanation / Answer
A.) Factors that have contributed to Mylan's ability to raise prices is its monopoly in the maket since it has strangehold over the market which helped him to avoid compettition in the market, due to which he was not ready to lower the cost of the drug. Mylan has effective marketing strategies which make its product saleable inspite of such a high price in the market. Further it was the only drug which helped to treat serious allergic conditions.
B.) Mylan would subsidize insurance out of pocket costs while not lowering the price of the company's Epipen as lowering the price means lowering it for all the consumers incuding high income groups that would decrease its profit and since it doesnot face any competition from the market it does not want to reduce its profitability. Subsidizing insurance out of pocket costs would help lower income groups to meet their expenses on health and hospitalisation, that would accomplish both the benefit of the lower income grooup as well as the maintenance of profits of the company.
C.) Price elasticity is the change in demand of a product in relation to the change in the price of that product and the formula is as follows:
Price elasticity of demand = Percentage change in demand ÷ Percentage change in price
Price elasticity defines whether the demand of the product is positively or inversely related to the change in the price of the product and the revenue depends on the demand of the product, more is the demand, more will be the revenue. hence the company as well as the marketers need to understand this relation in order to grab the maximum market share and increase its revenue and hence profitabiluity.
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