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Tuesday, October 26, 2004

Flu Snafu: Rampant Price Gouging

Many conservatives and libertarians charge that price gouging laws have contributed to the flu vaccine shortage. It turns out, though, that price-gouging laws aren't very effective. In fact, according the the Washington Post, there are actually firms that specialize in price gouging:

The larger [distributers] are also free to sell to smaller distributors, who then sell to even smaller suppliers that are willing to place orders for flu vaccine early in the season at high prices on the chance that they will be able to resell it for even more when the flu season hits hard. That bet pays off particularly well when dramatic shortages occur.

A salesman for Stat, in a Sept. 13 e-mail sent to pharmacy buyers, predicted this year's turn of events, saying that it was "my favorite time of the year! Hospital beds are filling up" and "all the little darlings are back in school coughing up their diseases . . . " Chiron was having production problems, he wrote, and if that continued, wholesalers "can pretty much ask and get what ever the old market will bare," a copy of the e-mail shows.

[CEO] Alley said his salesman was writing tongue-in-cheek, and that "no one wants to see kids hacking." But the pricing comments, he said, are "the truth. It's happened for the last seven flu seasons."

A recent survey found that 80% of hospitals had been contacted by a company offering to sell the vaccine at $30 or more a dose (four times the price charged by the manufacturer); 20% were offered vaccine at $80 or more a dose (10 times the manufacturer's price). Only about a quarter of hospitals responded to the survey, so these figures are probably overestimates (if hospitals receiving inflated price quotes were more likely to respond to the survey).

The price gougers may actually do some good, if their purchases of vaccine early in the season encourage the manufacturers to make more: they're providing a buffer stock.

But whether price gouging laws are good or bad, I take these two articles as evidence that they aren't that effective. There's an active secondary "speculative" market in flu vaccine, and most hospitals have access to to high-priced vaccine, if they want it. It's like ticket scalping: illegal many places (though not everywhere) but still common as concerts.


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