Healthy Skepticism Library item: 17573

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Electronic Source

Edwards J
J&J Writes a New Chapter of the Pharma Book, 'Why Drug Prices Are High'
BNet 2010 Mar 31
http://industry.bnet.com/pharma/10007503/jj-writes-new-chapter-of-book-titled-why-prices-are-high/

Full text:

Pharmaceutical companies employ a number of tactics to keep the price of drugs and medical products as high as possible, but Johnson & Johnson (JNJ) in Japan appears to have come up with a new one: It forbids retailers from stating the price of its Acuvue contact lens products in their advertising.

The logic of that, according to Japan’s Fair Trade Commission, is that without the prices being visible in advertising it would be more difficult for a price-war to occur with rival lens-makers. Retailers were “forced” not to mention prices in ads, according to McClatchy-Tribune.

The tactic is interesting for two reasons: First, it’s new. And second, it’s about “signaling,” a semi-legal price fixing tactic that corporate strategists sometimes employ in an effort to set prices in a market without actually conspiring with competitors.

In this case, J&J’s competitors would have instantly noticed that its prices were not stated in retailer ads. While this would not in itself stop rivals from cutting their prices, it would signal that J&J was not interested in competing on price. Whenever a competitor signals that, rivals have the option of not cutting their prices – and everyone in the category can enjoy the excess profits that result. Those who don’t acknowledge the signal will trigger a price war, and everyone’s profits suffer as a result.

The no-price tactic can now be added to Big Pharma’s existing armory of pricing strategies, which include:

Premiums for above-average effectiveness.
Paying competitors not to enter your market.
Lobbying the FDA to shut down your competitors.
Offering seemingly generous price freezes at a time when the price is high.
Systematically raising the price as long as it doesn’t crimp demand.
And, my personal favorite:

Just hiking prices for the hell of it.