The United States is essentially a captive market for drug makers, which sell drugs at dramatically lower costs everywhere else and rely on profits here to make up the difference. We pay the industry’s research and development costs, and a change, drug makers say, would end innovation.
So it worries the industry that there’s a growing trend toward importing drugs from other nations, with support from many politicians, and price negotiation at least for people on Medicare, which is a John Kerry presidential campaign promise.
Bear with me for a moment to look at another captive market: airports, and Logan International Airport in particular.
Airports are isolated from other commerce and full of people who must be there, sometimes for many hours, making it easy to charge exorbitant costs for basic foods. It could have gotten worse after 9/11, when travelers were obliged to arrive for flights earlier to deal with higher security, and when food, especially free food, began disappearing from many flights.
Overcharging creates resentment, though. Inevitably, airport food sellers could face a drop in sales as travelers brought food from outside — the same problem faced by movie snack bars — or even shoplifted, considering it fair retaliation against price gouging.
“Years ago, airports used to gouge people, they used to charge outrageous prices, like $5 for a hot dog,” agreed Massport concession manager Leah Teeven. But Logan long ago took steps to counter this with a “street pricing policy,” meaning “For all of our concessions, we require that prices be within the average of stores found outside the airport.”
Here’s how it works: Once a year, every item sold in Logan is surveyed and checked against prices at stores in Boston and Cambridge. If the seller is a chain, such as Au Bon Pain, prices are determined by looking at other Au Bon Pains. At stand-alone stores, prices must be derived from similar stores selling similar products; if sellers are trying to price a bottle of apple juice, they’d look at convenience stores that sell apple juice. The sellers will find three or four comparison prices, add them and divide by that number to find what’s supposed to be the Logan price.
This is easy to cheat on, especially for a chain. To ensure the highest price possible at Logan, a store can simply look at the highest-priced locations in Boston or Cambridge. A Harvard Square or Faneuil Hall, for instance. And they can control how much is charged at those stores, too, so prices can easily rise again to the limits of what the market can bear. A Logan convenience store can similarly look at the most expensive Back Bay convenience stores. Massport can reject locations chosen by their concessions, but Teeven didn’t know of that happening.
Airport food costs are still outrageous, and it’s still a captive market, but at least there’s a rationale for what’s charged. At least buyers can be sure there’s someone else in the world paying roughly the same amount for the same product. Unlike in pharmaceuticals, where even other wealthy industrial nations such as Canada get to bargain as a unit, making their prices as much as 70 percent cheaper than in the United States.
Price-gouging is price-gouging, whether the product is airport milk or cholesterol medication, and industry justifications for high prices in a captive market, which airport vendors have, as well as drug makers, do little to stem resentment on the part of captives who can’t afford to eat when hungry or medicate themselves when ill.
If they’re going to justify prices here, drug makers better get on with raising prices elsewhere in the world. Otherwise they’ll soon find the inmates are running their asylum, and a “captive market” will take on a whole new meaning.