Global Economy, Markets and Strategy
Agenda
- Case: Pricing the EpiPen: This is Going to Sting.
- Fairness in Markets with Price Discrimination
What are some options for Heather Bresch in this case?
| 1) | 2) |
| 3) | 4) |
| 5) | 6) |
What risks do you see with each option here?
As per the press release, Mylan:
- Offer savings card, up to $300.
- Doubling eligibility for assistance (family of 4 making less than $97,200 get it for free).
- 700,000 free pens to schools.
- Direct-to-consumer sales to reduce costs.
Then, offers a generic brand version of the same product for $300 (50% price cut).
Are the ethical considerations of price discrimination different in this case than in the previous case?
Should Mylan be allowed to set a price of $\$$600 in the US and a price of $\$$85 in France?
How does Mylan justify this?
"We do subsidize the rest of the world...and as a country we've made a conscious decision to do that. And I think the wold's a better place for it."
What does this subsidization argument imply?
What degree of price discrimination is Mylan engaging in?
Simple example: Coke wants to sell cans of soda it has already produced to up to four people. Therefore, MC=0.
| Person | Willingness to Pay (WTP) |
|---|---|
| Albert | $1.00 |
| Becca | $1.50 |
| Clair | $2.50 |
| Danny | $3.00 |
If Coke can only charge one price, what should it choose?
If Coke can identify Albert & Becca have lower WTP and offer them a non-transferable coupon, what should they do?
Notice, profit max's out with first degree (i.e. perfect) price discrimination: charging each consumer their WTP.
Three pricing strategies:
- No discrimination, one price, half participate.
- Third degree, two prices, all participate.
- First degree, four prices, all participate.
Which of the three pricing scenarios likely made the most consumers happy?
Notice how important it is for full market participation when we switch a Coke for an Epi-pen...
Distributional social preferences.
The degree and nature of how individuals care about the outcomes of others, relative to their own outcomes.
- Appears to be relevant to price discrimination.
- An important issue that transcends pricing.
- Example: Wal-mart attempting fee-based express checkout lines.
Break-out Group Discussion.
- On our Learn coursepage, you'll find some discussion questions in the module for this session.
- When time is up, we'll come back and discuss general impressions.
Key takeaways.
- Pricing across various market segments (e.g. geographically) is a common method of price discrimination.
- Distributional social preferences can limit the extent to which this strategy can be implemented.
- How a firm frames the reason for price differentiation is a critical consideration for managing these social preferences among consumers.