In most business transactions between large corporations, there will be individuals that are agents of both the supplier and the producer. One prime example of the principal-agent triangle that comes to mind is the role of the salespeople of a pharmaceutical company. In our country, the dynamic between the doctors, the medicine companies and the customer are vastly divergent to the dynamics here in the United States.
In our country, the salespeople of the company are the middlemen of the transactions taking place between the doctor/prescriber and the company itself. Ensuring that the company profits is merely a half of the full operation. The salespeople are also responsible for convincing the doctors that their medicine is better, more effective, or safer than the competitions'. Here, the agent, or salesperson must decide on whether to target the success of the company or the benefit that may come to the public by the advertisement of the product and the prescriptions from the doctor including that medicine. In the case that the medicine may not be as effective as its competitors, either option by the salespeople may result in the company perceiving them as having poor performance or the doctor being opposed to prescribing the medicine.
In most situations, however, the company receives feedback on the performance of the medicine and may try to improve its function.
The above was taken from my observations during a thorough tour of one of the larger Pharmaceutical companies in the area.
This was a rather terse post. I will try to add some flesh to it that you may respond to. It seems to me there are at least three different issues about how the market works. One is whether there is regulation for drug approval. In the U.S., the Food and Drug Administration requires rather an arduous procedure to show a drug is effective and has minimal side effects. Doctors can't prescribe drugs until they have FDA approval.
ReplyDeleteThe second issue revolves around whether their are generic alternatives to the drugs - low cost competitors. In turn, this has to do with whether the patent on the drug is still in force (in which case there are no generic alternatives) or if the patent has expired. Once the patent expires, the original drug might be priced higher than the generics, and the doctor still prescribes it because the doctor trusts the original drug.
The third issue is insurance for prescription drugs. When such insurance is present, the doctors may not be very sensitive to drug price in choosing what to prescribe because the cost is met not by the patient but rather by the insurance company. (There is a deductible that the patient pays, but it may be modest with the bulk of the cost borne by the insurance company.) This is where it is more like a quadrilateral than a triangle, because the insurance company clearly wants the doctor to prescribe low cost alternatives.
There is a version of the FDA in my country, but the regulations are more lax and prone to external influence. The patent, however, is extremely effective in regulating proper production of certain drugs.
DeleteThe interesting part is that insurance is nonexistent in our country. So the pricing becomes a major factor in prescribing medicine to patients.