Price Control by the Canadian Government

Introduction Key Economic Issues and Concepts 

The article "Pharmaceutical Cost Control in Canada: Does It Work?" by Menon Devidas focuses on the establishment of different measures implemented by the Canadian government in a bid to control the prices of drugs. The author maintains that price control by the government is a crucial issue that requires the implementation of proper measures that help in enhancing effectiveness and efficiency in any given industry. The main objective of price control is to regulate the prices of certain commodities to ensure that the costs of the products do not go too low or too high. The main economic issue raised in the article entails the price controls by the government, where the Canadian government capitalizes on mechanisms that seek to control the prices of drugs (Menon, 2001). The price control measures implemented by the government involved the creation of a semi-judicial body that would engage in the formulary management of the drug prices.

The central aspect identified by the author as part of the price control measures entails the role of the federal and provincial governments in the regulation of the prices of the drugs. The author maintains that each of the governments has a significant role in the control of the costs in the pharmaceutical industry. The economic concepts and principles depicted in the article entail the demand and supply of the product, which are crucial elements in determining the prices of different products. In a bid to fulfil the objective of analyzing the economic issue concerning price control by the government, the author engages in an in-depth analysis of the pharmaceutical industry in Canada. The aspects addressed include competition of the generic drugs in the market, the availability of drugs, and the expenditure of specific medications. The discussion on the given issue provided an effective platform for discussing the price control measures imposed by the Canadian government in a bid to regulate the prices of drugs.

The relevance of the Economic Issue 

Price control is an economic issue that focuses on regulating the prices of commodities either below or above the market equilibrium. The first significant importance of price control is that it helps in increasing the affordability of products to the customers in the situation where the government sets maximum prices of commodities. According to Miah & Suzuki (2018), majority of companies tend to increase rates of products in different occasions such as during inflation, which is an aspect that influences the affordability of the products considering that not all customers have the ability to acquire the products considering the price increase. In that case, the placement of a price ceiling by the government ensures that the price of the products cannot exceed the set limits regardless of any upcoming market situation. Considering the price controls discussed within the article, the Canadian government capitalized on the concept of a price ceiling in a bid to protect the consumers of the drugs against exploitation from the pharmaceutical companies.

The second importance of price controls by the government is that it may benefit the companies and the producers of products in the case where the government sets the minimum prices. Minimum prices set by the government ensures that the prices of products may not go lower than the limit regardless of the demand and supply of the product. In that case, the companies tend to experience constant profits considering that the prices of goods do not go lower than the set limits. In the article, the primary relevance of the price controls was to benefit the growing companies against exploitations from the companies that enjoy a monopoly in the production of drugs for the Canadian pharmaceutical market. The minimum prices defined for the drugs ensured that all the companies had the ability to sell their products in the market effectively despite the competition that may be experienced within the market.

Another significant relevance of price control that is depicted within the article entails the aspect of reviewing the factory-gate prices of the drugs to ensure maintaining the set price standards. The regulation of prices from the factory is an aspect that benefits individual consumers as well as the companies producing the drugs. In that case, the companies capitalize on ensuring that the production of drugs uses low costs to ensure that the market product does not exceed the set limit. On the other hand, consumers gain the ability to acquire quality drugs at affordable prices. The author maintains that the implementation of price controls of the drug had a significant role in enhancing the quality of medicines produced within the drug market. With an increase in the use of generic drugs that are priced lower than the "original" drugs, the minimum price control helped in enhancing the quality of the drugs.

Lastly, the implementation of price control measures by the government has a significant advantage to the government. Firstly, price control helps in minimizing the risks associated with inflation. In that case, the government enjoys a stable economy considering that companies have the ability to grow and pay the necessary revenue to the government in a bid to maintain the overall growth of the economy. Secondly, the regulation of the prices helps in providing the government with the power to control the market, which is a crucial aspect of reducing the monopoly of different companies. In the case of the price controls in the pharmaceutical industry, the government gains the control to oversee the operations that involve the demand, production, and supply of drugs to the consumers.

Academic explanation of the economic concepts 

Price control is an economic concept that is implemented by the government in a bid to create a balance in the operations undertaken within a given market. The prices of commodities are crucial elements that help in defining the demand considering the aspect of affordability. Additionally, the aspect of price can be used as a competition tool where companies tend to lower the prices of good in a bid to attract more customers. In that case, the implementation of the price control measures helps to reduce unfair competition and increase the quality of products delivered in the market. According to Carranza, Clark, & Houde (2015), there are two main strategies that are implemented in the price control measures in a bid to regulate prices of products and capitalize on effective market operations. The strategies include the minimum and maximum price controls, which are defined by the government based on different aspects such as cost of production and the market conditions.

According to Hatfield, Plott, & Tanaka (2016), maximum prices focuses on ensuring that companies cannot set the prices of commodities beyond the set limit, which is an aspect that helps in reducing the prices below the market equilibrium. The implementation of strategy capitalizes on reducing the monopoly of companies and benefits the consumers against price exploitation. Additionally, the strategy plays a crucial role in creating a competitive equilibrium, which is an important element in enhancing the growth and development of companies. The strategy factors in the equilibrium price and the maximum price, which are factors that play an important role in defining the demand and supply of products (Chang, Wu, & Lin, 2018). However, the concept of maximum price results in a decrease in the supply of products considering that the demand increases owing to the standardization of prices of the commodities.

Fig.1. The maximum price control diagram 

According to Littlechild (2018), the minimum price control strategy focuses on impacting the producers by ensuring that the prices of commodities may not go lower than the set limits. The implementation of the strategy by the government helps in enhancing the ability of the producers to engage in more production, considering the limits helps in setting a standard income for the producing firms. The price control measure plays an important role in protecting the economy against inflation, considering that the prices of products have a minimum limit. Ramanadham (2019) argues that minimum price controls by the government benefits the companies and the government but do not consider the needs of the market and the consumer's abilities. In that case, the strategy results in an oversupply of products and reduces the demand for products. The disadvantages associated with the minimum price control are based on the fact that the government does not focus on the affordability of the products and the individual interests of the consumers.

Fig.2. The minimum price control diagram 

Conclusion and Reflection 

Considering the analysis from the article, I have learned that price control is an important economic issue that has a major impact on the operation undertaken within the market. I have learned that the government has a major role in regulating the prices of different commodities in the market to create a positive impact that relates to the growth of the market. The aspects of maximum and minimum price controls are vital in maintaining the demand and supply of products in the market. Although the issue of price control by the government faces major criticism concerning the influence of the government in the market, it is important to note that the control measures have a positive impact on regulating basic operations within the market. However, the government must capitalize on effective control measures that help in reducing exploitation risks to ensure that companies can engage in competitive market operations.

In conclusion, price control is an economic concept that is implemented by the government in a bid to create a balance in the operations undertaken within a given market. The main objective of price control is to regulate the prices of certain commodities to ensure that the prices of the products do not go too low or too high. The relevance of price control is that it helps in increasing the affordability of products to the customers in the situation where the government sets maximum prices of products. The minimum price control ensures that companies can sell their products in the market effectively despite the competition that may be experienced within the market. Additionally, the price control strategy plays a crucial role in creating a competitive equilibrium, which is an important element in enhancing the growth and development of companies.

References

Carranza, J. E., Clark, R., & Houde, J. F. (2015). Price controls and market structure: Evidence from retail gasoline markets. The Journal of Industrial Economics , 63 (1), 152-198.

Chang, C. W., Wu, D., & Lin, Y. S. (2018). Price control and privatization in a mixed duopoly with a public social enterprise. Journal of Economics , 124 (1), 57-73.

Hatfield, J. W., Plott, C. R., & Tanaka, T. (2016). Price controls, non-price quality competition, and the nonexistence of competitive equilibrium. Games and Economic Behavior , 99 , 134-163.

Littlechild, S. (2018). Competition, regulation and price controls in the GB retail energy market. Utilities Policy , 52 , 59-69.

Menon, D. (2001). Pharmaceutical cost control in Canada: does it work?. Health Affairs , 20 (3), 92-103.

Miah, M. D., & Suzuki, Y. (2018). Property Rights and Price Control. In Power, Property Rights, and Economic Development (pp. 131-159). Palgrave Macmillan, Singapore.

Ramanadham, V. V. (2019). The economics of public enterprise . Routledge.