Insulin prices have skyrocketed in the United States, with Humalog being sold for over ten times its original price. This has led to consumers paying up to 40% of their post-subsistence income for the life-sustaining drug. Desperation has driven some to the underground economy, bartering and donating or buying it for a fraction of the price in Mexico and then smuggling it back across the border.
Price theory suggests that prices are not arbitrary but are manifestations of underlying realities. The growing diabetic population and their inelastic demand should be reflected in the price. However, the supply is not rising to meet the demand due to the decreased costs of production, which have decreased by 20% between 2007 and 2021. In the United States, insulin analogs cost 10 times more than any other developed country.
Under free market capitalism, competitive producers should be perpetually pushing market prices downward. However, this is not happening, and the market is dominated by three firms—Ely Lily, Novo-Nordisk, and Sanofi—which capture approximately 90% of the worldwide market. This is not a free market at all, but one where supply is forcibly restricted by state-granted monopoly privileges.
The regulatory state discourages innovation at home and prevents outside innovations from reaching consumers. Insulin alternatives exist, such as "biosimilars," but the Food and Drug Administration (FDA) has been slow to act. A 2018 study found that at least 11 insulin biosimilars are marketed at considerably lower price points in China, India, Mexico, Pakistan, Peru, and Thailand. However, the FDA refused to approve a biosimilar insulin product until 2021.
The patent system restricts supply by granting monopoly privilege to a sole producer, which, combined with the FDA's refusal to approve competing products, directly contributes to higher prices. Critics argue that there would be no innovation without patent protection, especially in the pharmaceutical industry. However, data suggests that pharmaceutical innovations fell in countries once a patent system was adopted.
If the government were removed from the picture, monopolists would be dethroned and competitors would return to moving the market toward equilibrium. This entails dismantling monopolies wherever they may be found—licensure, regulations, and patents. The political clamor is not entirely unjustified, as the high prices are exorbitant because the government's fault. What supply does exist exists because producers can profit (granted by fleecing the diabetic population in the process). If prices were forcibly capped, such incentives would be eliminated.
https://mises.org/mises-wire/how-government-created-exorbitant-insulin-prices
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