A Fly in the Ointment

A recent blog post, along with a related New York Times article, outlines a dramatic increase in the price of generic ointments. Several factors might account for high prices including:

  • High barriers to entry as regulations require firms to prove that ointments are absorbed in the skin as well as branded products.
  • Oligopoly conditions supported by the barriers since there are only three players in the market (and they are differentiated since they produce different generics).
  • Willingness to pay since doctors and patients are not generally price sensitive when it comes to prescriptions.

The problem with this is that it doesn’t address what changed in the last few years — all of these factors have been in place for some time. There has been some change in the players since Novartis acquired one of the firms (Fougera). Otherwise, we are left with some cognitive “shock” that encouraged the firms to raise prices.

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