The Value of Everything: Making and Taking in the Global Economy

by Mariana Mazzucato

Basic mainstream analysis of elasticity of demand (that is, how sensitive consumers are to changes in prices, depending on the characteristics of goods) is sufficient to explain the very high prices of specialty drugs, which makes pharma’s vague and rhetorical arguments about value all the more unconvincing. Specialty drugs like Sovaldi and Harvoni are covered by patents, so their producers are monopolists and competition does not constrain the prices they set. Normally, however, you would expect the elasticity of demand to be a constraint: the higher the price, the lower the demand for the monopolist’s product. But the elasticity of demand for specialty drugs is of course very low: peoples’ lives are at stake. They need these drugs to have some chance of surviving, and medical insurers, whether public or private, are under an obligation to pay for them.