Elasticity matters

Some food for thought, today. Elasticity, an economic concept widely used in economics but usually unknown for wanna-be healthcare entrepreneurs, is a crucial factor to identify future demand in healthcare products.

Elasticity refers to how much the demand for a product would be affected by a change in its price. The demand for pain relief or for a surgery of a ruptured aneurysm would be inelastic, as the patient or his/her family would demand immediate care, regardless of the price. On the other hand, an individual that has a limited disposable income (his salary) might, for example, defer the purchase of needed medications for the "silent" hypertension (after all, it does not hurt today, you don’t see the disaster coming) if its price increased a relatively small amount (a highly elastic demand). Maybe he would prefer to go on vacation instead.

And here’s the thing. It seems that the need of the aneurysm surgery would make it a great product to sell…, but it is not. In healthcare, inelastic products (generally speaking) tend to have zero cost alternatives. Yes, they are so important, that you just can’t charge too much for them. It would be like asking thousands of dollars for the air that we breathe. It just does not make sense. On the other hand, elastic products usually have space to aim for a big market. They are not necessary (or better, not perceived as necessary by the buyer), and therefore, they become a luxury (and you can charge whatever the market elasticity allows you to charge).

Never wondered why breast implants are so expensive?