Firm behavior in the U.S. market for factor VIII: a need for policy?

In this paper, we historically examine the market for Factor VIII concentrate, a collection of blood products used in the treatment of hemophilia A. With the introduction of HIV-1 into the U.S. blood supply, a majority of American hemophiliacs became infected with the virus. In response to contamination, the pharmaceutical manufacturers producing Factor VIII concentrate developed highly purified products which were introduced in the late 1980s at four to five times the price of the older, intermediate purity products. These new products are highly valuable in protecting the 30% of hemophiliacs who are HIV-1 seronegative; however, for those individuals previously infected by the virus, the extra benefit of the more costly products was questionable at the time they were first introduced. We postulate that there has been some level of industry coordination among the producers of Factor VIII concentrates to supply only the more expensive, highly purified products even though there appeared to be significant demand for the intermediate purity products by HIV-1 infected hemophiliacs. We develop and present a model that is useful for testing an inter-product collusion hypothesis. Further, we hypothetically discuss the model's implications and develop some public health policy options that might improve the competitive performance of the market.