Price Discrimination and Prescription Drugs
A few days ago Stephen Dubner wrote about the the price discrimination that goes on with prescription drugs. Namely he noted that for a specific drug, 90 tablets of generic Prozac, prices are substantially different across stores.
- Walgreens: $117
- Eckerd: $115
- CVS: $115
- Sam’s Club: $15
- Costco: $12
That is quite a distribution of prices. However, one of the commenters pointed out the reason for this. Most people who get their health care benefits through their employer get a prescription drug benefit. Hence all they pay is the co-pay which is likely the same everywhere you go. So if your Co-pay is $10 you pay $10 whether you go to Walgreens vs. Costco. There is no incentive to shop around and look for the best deal.
So for Walgreens sure, by charging $117 for 90 tablets they might lose customers who have to pay out of pocket expenses, but my guess is that those losses are more than made up for with customers who have only a $10 co-pay. As for Costco, it is their policy to bring good quality products to their customers for low prices.
The final comment (as I write this at least) is also interesting.
I just wanted to chime in with my two-cents. I am on a birth control that my health insurance does not cover. I always assumed that generic drugs cost the same regardless of where you go. I went to a local CVS and paid about $70. A few months later I had been given a Walmart gift certificate and as much as I hate Walmart I hated the idea of them getting free money… but I digress. When I went to fill a prescription while I was there I found out it was going to cost me $35. That was the first time I had encountered major price differences in my prescriptions because I have never had to fill a drug on a regular basis until now. This was for a common birth control shot that was generic. So you can talk about “extreme” examples but I think that this is a pretty average example where a common prescription costs double at one place to the next.
This, I think, demostrates perfectly the nonsensical way in which people view the Wal-Mart is Evil issue. They see the fact that Wal-Mart may not be the most generous employer and see only the bad. They completely ignore the benefits that Wal-Mart may provide by lowering prices. Lower prices are welfare enhancing just as lower wages are welfare reducing. The net effect? Well, there are probably alot more people enjoying the lower prices than who are working for Wal-Mart. Using a utilitarian framework, Wal-Mart and their lower prices are a good thing.