Assignment:
1. Why are most healthcare providers able to charge different groups of purchasers different prices for the same products?
2. Price discrimination requires the ability to distinguish customers who are the most price- sensitive and the ability to prevent arbitrage (resale of your products by customers who buy at low prices). What attributes of healthcare products make these tasks easy to do?
3. Can you think of a healthcare firm that does not price discriminate (i.e., charge different customers different amounts for the same product)?
4. Your firm spent $100 million developing a new drug. It has now been approved for sale, and each pill costs $1 to manufacture. Your market research suggests that the price elasticity of demand in the general public is -1.1.
- What price do you charge the public?
- What would happen to profits if you charged twice as much?
- What role does the $100 million in development costs play in your pricing decision?
- The Medicaid agency has made a take-it-or-leave-it offer of $2 per pill. Do you accept? Why or why not?