Live revision! Join us for our free exam revision livestreams Watch now

In the News

Monopoly - Eli Lilly cuts prices of insulin by up to 70%

Geoff Riley

1st March 2023

Eli Lilly has announced a series of price cuts that would lower the price of the most commonly used forms of its insulin by 70% in the United States. This is for a product whose marginal cost is estimated to be $10 for each vial.

Please read: Drugmaker Eli Lilly says it will cut insulin prices by 70%

Too little too late or a welcome and significant adjustment in price for a product with an extremely low-price elasticity of demand? 8.4 million of the 37 million people in the United States with diabetes use insulin and drug manufacturers had previously priced insulin at more than $275 a vial. The market is highly concentrated with Eli Lilly, along with Sanofi and Novo Nordisk, account for 90% of the US market for insulin. This situation creates a lack of competition and allows these companies to charge high prices and earn monopoly profits.

Why is the price of insulin so high in the United States?

  1. Limited competition: There are only three major manufacturers of insulin in the United States, which creates a lack of competition and allows these companies to charge high prices.
  2. Patent protection: The manufacturers of insulin hold patents on their products, which allows them to control the market and charge high prices without fear of competition.
  3. Complex distribution system: The distribution system for insulin in the United States is complex and involves multiple intermediaries, such as pharmacy benefit managers, insurers, and pharmacies, each taking a cut of the price.
  4. Lack of price regulation: Unlike many other countries, the United States does not regulate the price of prescription drugs, including insulin.
  5. R&D costs: The high price of insulin may also be attributed to the costs associated with research and development of new insulin products and delivery methods.

The high price of insulin has resulted in many individuals with diabetes struggling to afford the medication they need to manage their condition, leading to serious health consequences. Efforts to address the issue include calls for increased competition, patent reform, and price regulation.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.