Wednesday, May 6, 2020

Market Failure Of The Pharmaceutical Industry - 1245 Words

Market failure appears when there is a failure in allocation of goods and services. When the market is unsuccessful, the government is called to intervene and correct the failure. Over the years, government participation in the pharmaceutical market has been more wide-ranging than any other good or service. With the government’s ability to regulate, mandate, inform, finance and provide, their intervention to overcome market failure can be beneficial for the economy. Market failure plays a significant role in today’s economy. Pharmaceutical industries are a prime example. There are several possible reasons as to why and how market failures might lead to such high prices for drugs. Information asymmetry is the most critical form of†¦show more content†¦Moreover, patients often have less knowledge than the prescriber does about the appropriateness of the drug, where it can be very misinforming for the consumer. Lastly, drug efficacy is a problem in all contexts. Since stakeholders are likely, less informed than manufacturers it causes both the consumer and prescriber to depend on the manufacturer for information of the effectiveness of the drug (Bennett, Quick, Velasquez, 2016). Externalities, also viewed as the negative spillover effect, plays a role in market failures associated with pharmaceuticals. In the pharmaceutical sector, externalities take place when consumers affect the utilization of a drug’s value. Externalities typically stop consumers from receiving cheaper costs for drugs because they normally don’t carry the complete costs of drug expenses. Negative externalities induce a cycle of ongoing sales, more profits and more subsidies. Thus, if externalities are left to be controlled by a market then the implications will lead to high pricing on products. Recently, there had been a controversy over the rise in pharmaceutical costs involving the EpiPen in the United States. 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