Price Incentives

Subject: Philosophy
Type: Critical Analysis Essay
Pages: 7
Word count: 1973
Topics: Utilitarianism, Business Ethics, Ethics
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Facts of the case

One of the major ethical issues and concerns in the business arena revolves around how consumers are treated regarding price incentives. More so, price hiking on drugs (price gouging) has become such a major issue warranting a closer look. In light of such concerns, the Mylan pharmaceutical company increased the prices of EpiPen (Clarke). The device is useful for individuals (especially children) for administering epinephrine.  As such, it is a significant element of their personal health management because of its role as a specific antidote for anaphylactic attack from allergic reactions. Hence, denying children the drug through price gouging touches on the ethical implications of doing harm to others by impeding their accessibility to one important device that their life depends on. 

Many American families, more so those ascribed to the high-deductible insurance, are currently struggling with the maintenance of the high costs of the drug, around $500 and since the acquired the device 2007, the price increment has soared up to 400% (Clarke). The price was $100 in 2007 and got increased up to $600 in 2016. The decision also shows issues with an economic or financial burden to individuals in the society. The Mylan Company is the only provider in the market; thus, leaving consumers with no choice but to purchase from the company. During the increment, Heater Bresch as the company’s CEO was summoned to the House Oversight Committee and questioned about the pricing decisions, therefore, an indication of legal implications of unethical behavior. From this, the company was plunged into negative publicity leading to the lowering of the stock trade, and highlighting the adverse effects of bad corporate reputation due to unethical behavior or decision. The case also shows legal implications of unethical conduct, with the state attorney generals investigating whether the decision had led to the violation of antitrust (Kasperkevic). 

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Identify All the Ethical Issues Involved

The moral issue involved in the case can be evaluated from different fronts. For one, the decision to increase the price on a commodity by 400% can be assessed as to whether the company made a fair or unfair decision. However, given the burden it had on the consumers, I see this as an unreasonable business decision. It is unfair in the sense that from a business perspective, there is the necessity to engage in fair practices, especially fair pricing hence touching on ethics (Coomans 30). Another ethical issue concerns the financial burden on the customers who depend on the company as the only source. Most are attached to high-paying insurance, and with that, any decision that plunges them into further financial difficulties can be considered as utterly wrong. Judging from the utilitarian ethical principle, I see the moral issue as concerning maximizing harm and not benefit, therefore, a wrong decision (Renouard 85). 

Another ethical issue I found embedded in this matter is on the behavior of the company towards children as the most affected, especially since the children are the ones who need the drug and with the hiked prices; they are more prone to suffer. By undermining the plight of children, I see the ethical behavior of the company as a question of being ‘good or bad’ decision of which it engages in a bad decision. Finally, the behavior concerns or revolves around the violation of the antitrust law thereby denoting a company that does not respect or follow the legal provisions to inform its actions (Coomans 32). In this sense, it can be assessed as a case of right or wrong, since it is wrong not to follow the set laws and regulations. In analyzing this case, the possible bias that I can introduce is focusing on the bad deeds of the company and siding with the affected persons. However, the company may have had justifiable reasons to increase the prices, because it is the social responsibility of the company to make profits. 

Identify All of the Stakeholders

For this case, different stakes involved include the consumer groups, the public as a major stakeholder (because they are the customers), the medical and healthcare sector especially the pharmaceutical industry that sells drugs, and the government as a regulator. The role of the consumer rights groups in the case stems from the fact that they have the commitment to fight for the rights of the consumers and as such, intervene when the business practices of a company are considered or seem to be unfavorable and undermining the rights of the consumers.  The public has a vested stake because citizens are customers of the enterprise. However, a lot has to be influenced by the pharmaceutical industry, since it is the primary manufacturer of drugs. Its involvement entails being affected by unfair trade or business practices from one of the major players in the sectors. Equally vital is the health care industry whose mandate is on ensuring that health care services, including drugs and treatment, are available to the people. The government as a regulator follows the case to find out whether any decision violates the current set rules and regulations and this is evident from the manner in which the CEO was summoned by the Senate and also put under investigation by the state attorneys. 

Delineate (and/or create) Alternative Courses of Actions

An alternative course of action for the company should be refunding for the amounts that were overcharged and as such, meant to salvage the reputation of the enterprise. The solution entails the business trying to salvage its image after the unethical course of action, based on the notion that it is very unethical taking advantage of people’s needs, especially for necessity materials like medicine (Coomans 30). Second, a natural alternative would be on price cutting with the company going about lowering the prices to counter the outcry by the consumers and the intervention by other groups like government, health sector, the pharmaceutical industry and the consumer groups. However, the most creative solution for the company is to consider a strategic approach to pricing the medicine. In this sense, the solution means going back to assess the production processes, the input used and whether the pricing reflects the amount utilized in the manufacture. The aim should be to avoid overexploitation of the market through monopoly gouging.  

How the Alternatives Will Affect the Stakeholders

The rebating of the customers will have different effects on each stakeholder. For the consumer, they shall have recovered money lost through unfair price increment while at the same time relieved that their kids will have drugs to secure their healthy and ensure safety. Another primary consideration is how the decision is yet to have overall improved accessibility to the drug, in particular for kids who are allergic. For the government, it shall have intervened in unfair business practice, and the relief will also be on the consumer rights groups. The health care sector and the pharmaceutical industry will be relieved by increased or improved accessibility to treatment and as such, have the reputation of being concerned about quality healthcare at affordable prices.

The other alternative is on reducing the price of the drug. The decision will have the same positive effect on increased accessibility of the drug hence improved healthy for the public while also reducing the economic burden. The pharmaceutical sector and the health sector will have a positive image for making drugs accessible by doing away with monopoly gouging.  The government will be a winner as the case will emerge as a successful implementation of law or regulation on the price of goods and services. Much triumph also goes to the consumer rights groups for championing the discourse on fair pricing.

However, the best and creative solution should be for the company to charge the prices against the expenditure or input in the production of the drug. It will affect the business by reducing profits since the prices will be aligned with the production input.  The decision also leads to reduced prices that the public enjoys through increased accessibility, a benefit also heralded by the health and the pharmaceutical sector.  

There is no potential harm in all the alternatives because the solutions aim at making the drug accessible to the public. A primary law that should be considered is whether there is an antitrust violation (Coomans 31). All are meant to ensure that the company does not violation such provisions. In fact, the decision to price the product based on the inputs in production makes the company avoid any legal ramifications. Besides, all are meant to have a positive image on the company and as such, improved stock ratings, more loyal customers and overall profitability and expansion of the company. A potential conflict of interest in my case only concerns my focus on the plight of the customers (since they have economic burden) and the need for the business to make profits. In this is sense, the creative solution on pricing based on the production input limits the ability of the company to make the necessary profits and ensure sustained growth.

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Seek Guidance 

For this case, I will first ask close friends on how to go about ethics in business, the legal issues involved and what considerations are taken when determining whether an action is right or wrong. For the creative solution on pricing the drug based on the input in the production, it will be imperative to seek advice from respectable professionals, especially in the area of business management and ethics. However, a lot should also come from the evidence-based practice. As corporate social responsibility becomes a major concern in the modern organizational context, studies have equally been focused on bringing about evidence-based knowledge for handling and evaluating ethical decisions. Evidence-based knowledge provides solid and hard evidence of going about ethical issues in business (Kepes et al. 446). For instance, in reducing the prices of the products to appear ethical, the evidence-based knowledge is useful in recommending the limits to which such consideration can be plausible because businesses too have the social responsibility of making profits.  

Make a Decision; Act; Monitor the Outcome

For this case, my decision would be for the company to assess its pricing incentives for the drug against the expected inputs into its production. In this sense, the company should have a plan for monitoring the entire processes of production, how value is added in each stage of production, the resources used and finally, if the final prices charged for the drugs reflect the objective of the company of making profits and stay staying socially responsible. A primary concern is that for social responsibility, profit incentives should be pursued by keeping a proper line between being ethically accountable to the society and still achieving the objectives of the company. The profits solution is meant to allow the business to make profits but keeping in line with the necessity to act socially responsible to the public (customers), the government (by abiding by regulations) and the consumer rights (by practicing ethically).

However, the very decision is also poised to result in some adverse outcomes, especially when the strategy for keeping with prices aligned with the inputs of production does not support the company’s business model. In this case, the company may not find it feasible implementing the proposed solution owing to the expensive nature of the drug. Another issue is that the firm is practicing a monopoly and as such, abiding by the law may be difficult since it is operating under the laws of free market. To fix such a scenario, it would be imperative to ensure internal monitoring or audit of the company, even if it means acquiring external audits to explore or determine whether the current price incentives reflect the inputs into production. In short, keeping prices within the limits of production is meant to ensure that the prices charged are not unethical.

Did you like this sample?
  1. Clarke, Toni. “U.S. lawmakers blast Mylan CEO over ‘sickening’ EpiPen price hikes”. 21 September, 2016. Web. 30 April 2017. 
  2. Coomans, Michel. “Fair play” or “loyalty and coherence” a source of performance and value creation through business ethics.” EBS Review, 20(2005): 30-47.
  3. Kasperkevic, Jana. “New York investigates EpiPen maker Mylan after price hike of medication”. 6 September, 2016. Web. 30 April 2017. 
  4. Kepes, Sven, et al. “Evidence-based management and the trustworthiness of our cumulative scientific knowledge: Implications for teaching, research, and practice.” Academy of Management Learning & Education 13.3(2014): 446-466. 
  5. Renouard, Cecile. “Corporate social responsibility, utilitarianism, and the capabilities approach.” Journal of business ethics 98.1 (2011): 85-97. 
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