How does insulin price gouging work? Shouldn’t competitors be interested in selling for $1 less until it gets close to actual cost?

Question

Given that its insulin and not some new pharmaceutical, I assume the method of making more is available to everyone?

In: Economics

Answer 1

First, the science of making more, as in a general understanding of the process, yes is well known.

BUT, the machinery, assembly lines, techniques, and methods needed to actually carry out that chemical process are trade secrets (owned by each private manufacturing company) and not well known. So a company that wanted to start making insulin yes doesn’t have to start from completely nothing, but would still need to invest a lot of time/money into research and development to get that manufacturing process up and running both efficiently and on a large scale.

So, for a company that doesn’t make insulin to start making insulin on a large scale, it’ll likely take a lot of money for them to get started, something companies aren’t willing to due unless they know for sure that it’ll be profitable.

So that leaves the current companies making insulin (In the USA, which is what I’m basing this off of, but the story is similar across the world).

Of which, there are only 3 serving the USA. ([https://care.diabetesjournals.org/content/41/6/1299#:~:text=Currently%2C%20there%20are%20only%20three,began%20to%20save%20human%20lives.)](https://care.diabetesjournals.org/content/41/6/1299#:~:text=Currently%2C%20there%20are%20only%20three,began%20to%20save%20human%20lives.))

So those three companies don’t really face a lot of competition, the USA is large enough where they all can make a profit, and it isn’t like there are a dozen other companies trying to undercut them. It is a lot easier to fight/keep track of 2 other fighters in a fight than 20 others. This also means that prices aren’t in as much competition, all three companies can see that while yes, they could slash their prices and try to steal a bunch of business from their competitors, their competitors could just slash their prices to match in a price war. With the end result being they’re all still charging around the same amount as each other, all just significantly less than before, so all 3 of them are making significantly less money.