In his article The Ethics of Price Gouging, Matt Zwolinksi details the factual account of four college students who purchased five hundred bags of ice at a price of $1.70 per bag, then transported and sold them to hurricane victims in North Carolina at a price of $12 per bag. The act violated the state’s price gouging laws, and the students were arrested. Zwolinski argues – successfully, in my opinion – that the act, while unsettling, provided benefit to the region in terms of supplying a needed commodity to a distressed market, as well as sending up an economic signal to suppliers that there exists an extreme surplus demand for ice in this market. Though deplorable in motive, the students were – at least by definition – enacting upon Michael Porter and Mark Kramer philosophy detailed in Creating Shared Value – where the area between profit maximization and social responsibility can become grey, if not slippery. Pharmaceutical companies, in particular, must make very difficult choices between profit and social benefit.[i]
Suppose a pharmaceutical company were to develop a one-dose cure for HIV/AIDS. At what cost should the firm sell this medicine? When considering the millions of lives at stake, many of which are in dire economic conditions, one would desire for the company to give the medicine away – but this is clearly not an option for the company, nor is it necessarily ideal for society at large who would benefit from the firm’s future developments. Even if the company were to sell the medicine at cost, this would price millions of impoverished infected out of the treatment, as well as provide nothing for future R&D for the company. The appropriate selling price for the medicine then is market cost, whatever that is determined to be. The unsettling result is that the pharmaceutical company will garner presumably astronomical profits off the HIV epidemic while also leaving others untreated. This is troubling to the public, but is also – by definition – the method which brings the most benefit to the most people within the confines of the system.
There are, however, exceptional cases. In 1987, while attempting to manufacture a medicine which would kill parasites in dogs, scientists at pharmaceutical giant Merck accidentally stumbled upon a cure for river blindness, a disease which affected some 18 million people in Africa. Immediately following the celebration of the breakthrough came the conundrum: what do we now do with it? Not only did the afflicted population not have the means by which to pay for medicine, but transport of the drugs to this region was going to be very difficult and expensive. Merck executives were faced with the decision of scrapping the medicine or shouldering the burden of distributing it for free. They chose the latter, in spite of every financial motive to do otherwise.[ii]
Presented here are two contrasting scenarios – and though the first is fictionalized, it stands as a representation of decisions pharmaceutical companies need to make perpetually. When compared, these two situations illustrate the types of decisions the profit-seeking corporations are forced to face throughout the course of their operations. As described by Porter and Kramer, businesses will increasingly attempt to combine their profit seeking habits and their social responsibility, thereby maximizing their total shareholder value.
[i] Zwolinski, Matt, The Ethics of Price Gouging. Business Ethics Quarterly, Vol. 18, No. 3, pp. 347-378, July 2008.
[ii] "Merck Offers Free Distribution of New River Blindness Drug." The New York Times. The New York Times, 21 Oct. 1987. Web. 29 Apr. 2015. <http://www.nytimes.com/1987/10/22/world/merck-offers-free-distribution-of-new-river-blindness-drug.html>.