Daraprim Pricing: A Case Study on Market Failure and Implications

This case study delves into the market failure surrounding the antibiotic drug Daraprim, focusing on the actions of Turing Pharmaceuticals AG and its CEO, Martin Shkreli, who drastically increased the drug's price by 5000%. The analysis highlights the company's concentrated market power and the resulting exploitation of customers who had limited alternatives. The implications of this market failure include financial strain on patients, potential health complications from using less effective alternative treatments, and rejection from nursing homes due to the high cost of Daraprim. The case study also touches on the challenges faced by competitors attempting to enter the market with alternative drugs, as the original drug's reputation and market dominance made it difficult to gain traction, ultimately leading to market instability and patient suffering. Desklib provides resources for students to explore similar case studies and assignments.

Market Failure Analysis 0
Title: Market Failure Analysis
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Market Failure Analysis 1
Contents
Analysis of Market Failure Case................................................................................................2
The implications of Market Failure............................................................................................2
References..................................................................................................................................4

Market Failure Analysis 2
Analysis of Market Failure Case
The market failure case that has been taken into consideration is about the antibiotic
drug Daraprim. The Daraprim is an effective kidney drug and the organization Turing
Pharmaceuticals AG held a monopoly in producing this drug. The chief executive officer of
the organization Martin Shkreli wanted to take advantage of this opportunity and hiked the
price of the drug Daraprim profoundly and shockingly by 5000 percent. Thus, the medicine
which used to cost $13.50 was now being sold at $750. This also resulted in enormous
outrage that was delivered by the customers of Daraprim. This is a market failure case of
concentrated market power. There was no intervention by the government too. Another
pharmaceutical company tried to take advantage of the outrage from the customers and
provided customers of Daraprim with an alternative drug that have similar attributes like
Daraprim, at a lesser price. But due to the market hold of the organization Turing
Pharmaceuticals AG, it was very difficult for the other organization to shake their
monopolistic power (Lueken, 2018). The customers have no other choice and thus, they were
forced to get exploited by the organization. This is a market failure as the customers of
Daraprim are familiar with the previous price of the drug and just because having a
concentrated market power the organization gave very less preference to the needs and
desires of the customers and gave their profit motives biggest priority. In this type of market
failure, there is also very fewer chances of competing with the organization that holds a
monopoly (S. Armstrong, 2018).
The implications of Market Failure
The main implications of this market failure are –
 The patients who do not have a strong financial status and were unable to afford the
drug after the price hike have to suffer from many health issues and severe pain

Market Failure Analysis 3
issues, as they were unable to afford the drug, which would have provided them with
relief.
 It is due to the non-availability of Daraprim that Toxoplasma gondii, which is a
parasite that causes toxoplasmosis can affect a person with severe HIV infection that
further result in life-threatening diseases (Liljenquist, Bai and Anderson, 2018).
 It is due to this market failure that patients have to move to other alternatives of the
drug which are not that effective. Also, due to this people are left with no option, but
to experiment with various different drugs which may or may not work.
 It is due to the high cost of pyrimethamine that many of the patients who are ready to
be transferred to the nursing home, are being rejected by the nursing home as they do
not have the budget to spend on pyrimethamine.
 Also, Daraprim has fewer side effects and the other medicines that were being taken
into consideration were not studied in-depth. The Turing Pharmaceuticals AG price
hike affected the market of other drugs too, as people did not consider them credible
enough to provide them with any relief. Thus, the competitors who tried to step in the
market with an alternative drug have to face huge losses (Levy and Rizansky, 2013).

Market Failure Analysis 4
References
Levy, M. and Rizansky, A. (2013). Market failure in the pharmaceutical industry and how it
can be overcome: the CureShare mechanism. The European Journal of Health Economics,
15(2), pp.143-156.
Liljenquist, D., Bai, G. and Anderson, G. (2018). Addressing Generic-Drug Market Failures
— The Case for Establishing a Nonprofit Manufacturer. New England Journal of Medicine,
378(20), pp.1857-1859.
Lueken, M. (2018). Defining Market Failure (with Examples). [online] EdChoice. Available
at: https://www.edchoice.org/blog/defining-market-failure-with-examples/ [Accessed 7 Mar.
2019].
S. Armstrong, W. (2018). Daraprim prices still an obstacle for patients. [online] Healio.com.
Available at: https://www.healio.com/infectious-disease/hiv-aids/news/online/%7B90a0d411-
0033-4269-ba41-89986411071d%7D/daraprim-prices-still-an-obstacle-for-patients
[Accessed 7 Mar. 2019].