When insulin makers change prices together, is that collusion?

Insulin prices have something remarkable in common across all manufacturers: they almost always change together. Is that collusion? This article, again from Business Insider, discusses the how and the why:

Hard to believe it’s a coincidence, eh? Look at this:

http://static6.businessinsider.com/image/57da97d8077dcc21008b5fd4-1200/insulin-prices-lantus-levemir-v2.png

                         Courtesy Business Insider

It is the same for airline companies. If you have only a small number of suppliers, there does not need to be collusion for this to happen. Each company just needs to watch the others’ price, and rise often when the others do (if you don’t rise often, they might not rise with you when it’s your turn).

1 Like

Nice job, K – a good explanation of game theory on the subject! It is related to a concept called “signaling.”

Except with airlines, you don’t have a third party (insurers and PBMs) dictating which airline you have to use, and then negotiating secret rebates behind the scenes while the airlines increase prices in lock step

If some airlines raise their prices and others don’t, the ones that don’t would rightly get more of the business with their lower prices. If they all sit down together and collude to raise their prices simultaneously and equally so that the consumer has no choice, then you have a problem. But even if this happened there would be a point where they’d all lose business because at some point people would just fly less. That can’t happen with insulin…

1 Like

Also if they sit down together and collude on prices, it’s illegal.

2 Likes