Economy

This Comic Nails the Key Difference Between the Pharmaceutical and Ammunition Industry

In the wake of a mass shooting, demand for guns and ammunition often skyrockets in America. Calls for gun reform make some gun owners feel weary, prompting increased sales. But despite the spike in demand, the price of ammunition remains largely unchanged, as NPR reported. That's not what happens in most markets, defying the basic principles of economics, and it makes you wonder: What would happen if Turing Pharmaceuticals CEO Martin Shkreli got into the ammunition industry?

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That is, what if the ammunition market acted like the pharmaceutical industry? Last month, Shkreli faced the internet's wrath after raising the price of Daraprim, a lifesaving drug used to treat an infectious disease, from $13.50 to $750 per pill. But while the public response to the price hike has been exceptional, this is only one of many examples where drug companies have upped the cost of medication overnight.

This comic perfectly captures the disconnect between the drug and ammunition industries.

bullets

In the hypothetical "best-case scenario" illustrated by cartoonist Keith Knight, "reviled drug price booster Martin Shkreli buys up ammunition industry and raises cost of a single bullet 900 percent."

As it happens, that's (almost) exactly what most economists would recommend for ammunition manufacturers in the U.S., an industry that has been experiencing shortages of bullets for the past seven years. In response to the election of President Barack Obama, and concerns from gun owners that he would impose restrictions on semiautomatic weapons, there have been spikes in demand for ammo. But many sellers are worried that raising the price would be perceived as unfair and negatively affect sales.

RELATED: These Drugs Expose the Troubling Culture of Drug Pricing

"Traditional economic theory doesn't really have room for fairness perceptions," Margaret Campbell, a marketing professor at the University of Colorado, Boulder, told NPR. "If a consumer sees a price go up in an unexpected fashion, they want to know, 'Why? Why has it gone up?'"

For the ammunition market, changes in the cost of bullets are immediately perceived by gun owners, who can see fluctuations in real-time, on the price tags at ammo stores. The pharmaceutical industry is different; most patients are not aware of the true cost of the drugs they buy because, unless you don't have insurance, many medications are seemingly covered by health insurance companies.

And though Shkreli said that he would lower the price of Daraprim after being outed in the price gouging scandal (which he still hasn't done nearly a month later), he might be a good candidate for a job in the ammunition industry. Just as he responded to demand for a life-saving drug by raising the price of a pill by more than 4,000 percent, he could presumably do the same for bullets and profit, respectively.

Martin Shkreli just challenged Bernie Sanders to a public debate.

Martin Shkreli just challenged Bernie Sanders to a public debate.

Posted by ATTN: on Tuesday, October 13, 2015

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