Acton Institute Powerblog

The monopoly markup

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Note: This is post #48 in a weekly video series on basic microeconomics.

Ever wonder why pharmaceuticals are so expensive? In this video by Marginal Revolution University, Alex Tabarrok shows how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: How monopolies use market power to increase price

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

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