'Sticky pricing' in pharmaceuticals

Econ 101 informs that competition lowers prices. In reality that's not always the case. 'Sticky pricing' is an example of deviation from the norm. Consider the case of Gleevec,

When Gleevec came on the market, its list price was about $26,000 a year. Today, there are several highly effective drugs in the same family on the market (sometimes called “sons of Gleevec”). The list price for each is about $150,000 annually. What happened is that each new entrant cost more than its predecessors, and their makers then increased their prices to match the newcomer’s. When the first generic version entered the market in 2016, its list price was only slightly less, about $140,000. This phenomenon, what economists call “sticky pricing,” is common in pharmaceuticals. It has raised the prices in the United States of drugs for serious conditions including multiple sclerosis and diabetes even when there are multiple competing drugs. The problem is that companies have decided it is not in their interest to compete.

The article identifies behavioural response and not collusion as the reason for such pricing, 

In situations where there can be only one winner, competing is a given. But a lot of life and a lot of business just isn’t like that, especially when a group of companies are all doing good business by selling a type of drug for a very high price. There’s cover in numbers. When you’re driving on the highway where a speed limit is 55 and most everyone’s going 70, you’re likely to increase your speed, too. Why should you feel bad? Why would the cop single you out? Someone else in a flashy car is probably doing 90. (For drug makers, Mr. Shkreli would be the hot-dogger who gives others cover.)

The parties are not really colluding. Drivers aren’t calling one another up to agree to drive too fast; no manufacturers (one hopes) are sitting at a country club agreeing to keep their prices high. This makes drug makers difficult to prosecute under racketeering or restraint of trade laws. And shaming is in the eye of the beholder. The companies’ “stakeholders” are not really, after all, patients, but shareholders, who most likely will support attempts to make as much money as possible.

How do countries deal with Pharma pricing? 

But while drug prices in America are going up, many of the same drugs are cheaper — and repeatedly have their prices lowered — in other developed countries, where governments step in to regulate costs. These countries conduct large-scale negotiations to set a national price or price ceiling that its government or hospitals or citizens will pay — a kind of speed limit. Some stipulate that prices decline as a drug ages... This is true of countries that have a national health system and those that do not. And price regulation can coexist with that American value, competition. Armed with an assessment of a drug’s utility, Britain’s National Health Service sets a price it is willing to pay pharmacists for medicines they dispense. The pharmacists, who are in business for themselves, can then source the medicine from any wholesaler. The more cheaply they can procure the medicine, the more they profit. Patients pay only a small portion of the cost and there is overview to correct for “market failure” — a situation in which pharmacies are making too much or too little from this arrangement.

Eli Lilly's decision in 2019 to reduce the price of its best-selling insulin brand, Humalog, to $137.35, is a good example of price gouging by Pharma companies. Even if the decision was packaged as a new generic version, the drug is being produced in the same factory where the original Humalog is being produced. The same Humalog retails at $45-55, inclusive of all taxes and markups, in Germany, and its price in the US has risen from $35 when it was launched in 2001 to $275, a rise of over 600% in less than two decades.