Right there on pages one and two of every economics textbook ever there is that little chart of supply, demand and prices. As prices fall fewer people wish to supply and as prices rise more do. That’s all we need to explain this little story:
A 700% spike in the price of a drug used to wean addicts off heroin has caused alarm among treatment agencies, which warn of a rise in drug-related deaths unless urgent action is taken to make it more affordable.
Buprenorphine is an alternative to methadone that reduces the symptoms of withdrawal and lessens the desire to use heroin. It is estimated that more than 30,000 people in England use the drug, which offers a reduced risk of overdose compared with methadone.
About which we are told:
The shadow health secretary, Jonathan Ashworth, questioned the role of the drug makers in the crisis. “We already have record deaths from drug misuse, while treatment services have been slashed by millions in recent years,” he said. “Yet again, this looks like ‘big pharma’ exploiting the market by ramping up the price, and some of the most vulnerable in society ultimately paying a devastating price. With treatment services on the brink, these escalating costs could push many into absolute crisis. Ministers urgently need to step in, get a grip and ensure access to this vital drug for the most vulnerable at fair prices.”
Well, OK, but how are we to define a fair price? Possibly one at which people willingly produce the item desired?
For what has happened here is nothing to do with patents or any other restrictive practices. It’s simply that some of the people who used to produce the drug thought the game not worth the candle and stopped doing so. That is, the price being paid was too low to call forth the desired supply. Suppliers leave the market, the price rises, that’s just what happens. That’s also what we want to happen - the price rises and we’re now assured of supply at this new and higher price.
It’s not even Big Pharma here, it is generics manufacturers.
Earlier this year it emerged that one of the makers of the generic drug, which is far cheaper than its branded equivalent, Subutex, had stopped producing it. Amid fears of an impending shortage, the government stated that pharmacies could be paid close to the same price for dispensing buprenorphine as Subutex, in an attempt to encourage manufacturers, who could command higher prices elsewhere, to continue supplying the UK. Prices rocketed.
There’s a wider importance to this little story just as there is to those basics about supply and prices. There are all too many who believe that government should be fixing prices so that they are “fair.” Rents should be “stabilised,” house prices reduced, transport fares pinned back and so on. And what happens when prices are so set - fair never does mean where people willingly produce for if it were what would be the point of the politicians defining “fair”? - then that thing whose price has been set fairly becomes in short supply to vanishes.
Venezuela, where food was most fairly priced, has no food. A price for housing which is too low to encourage market supply will have a shortage of housing. If drugs are too fairly priced then people will stop making them.