The Ethical Economics
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Turing Pharmaceuticals

In 2015, hedge fund manager Martin Shkreli received enormous attention and condemnation after his company, Turing Pharmaceuticals, raised the price of a drug his company sold from $13.50 per dose to $750 per dose. The drug, first developed in the 1950s, was needed by only a small group of people and was no longer under patent protection. However, the small market meant that only one firm sold the drug at a slight markup over production cost before he purchased the company. After Shkreli’s firm acquired the drug, it used its monopoly power to raise the price and its own profitability arguing that this was an acceptable market practice. No close alternatives to the drug existed and production of a generic version of the drug by another company would take time and require expensive FDA approval.

Shkreli was later imprisoned for other unrelated business activities, namely securities fraud. His career in business consisted of a series of sometimes very profitable schemes based on deceptions, lies, and the creative use of monopoly power. Most notably though, his behavior was not an example of the inconsistencies of the free market system and the failure of the homo economicus assumption. Shkreli’s behavior on several counts was greedy as it served to benefit his company and himself at the direct expense of others. This is an example of a blatant use of monopoly-power that does not serve to increase market efficiency. His behavior did not fulfill the requirements of enlightened self-interest necessary for the efficient functioning of a market economy.

Steven Suranovic, December 1, 2019