Martin Shkreli has faced jail because of raising the price of a lifesaving drug Daraprim from $13.50 to $750 per pill — over 5,000% overnight in 2015. I heard this Shkreli case is called a rent-seeking.

pill

Imagine there’s a company that could make money by selling a product.

But instead of improving their product or working harder, they go to the government and say:

“Make a law that only we can sell this product — no one else!”

If the government agrees, the company now makes more money just because of the rule — not because they get any better.


Daraprim basically didn’t have a market large enough for competitors to enter. Shrekli bought Daraprim and raised the prices claming large companies should have no issue paying more. And he actually went to jail for lying to his investors. So basically a form of illegal rent-seeking.

This has been an intriguing concept for me lately. Rent-seeking allows people to extract from economy without contributing to it. This is a legal but an unethical and harmful action.

A primitive example of this is explained by farm economies.

Consider a farm has cash and subsistence crops as two production elements. Cash crops are for profit and subsistence crops are for farmer’s own consumption. Rent-seeking here is the theft on the cash crops. It causes cash crop producers to stop producing, economy suffers — as Robert H. Bates claims happened in many African countries.


I understand rent-seeking can be bigger issue than we assume for economies today. Many articles estimates rent-seeking activities reduced total income in terms of GNP for many countries.

John Sophocleus says rent-seeking activities reduced total income in the U.S. by up to 45%. Rent-seeking activities in my country particularly based on “politicized tenders” alongside India and reduction is around %7 to %12 something.


Recently, a popular politician from the opposition got arrested in my country with several charges on corruption. Apperantly his case considered as “no proper bidding process” — therefore illegal. But considerably, it’s just unethical rent-seeking.

Funny enough rent-seeking already is a common economic friction factor in my country.

With the same percentage rate as Trump’s infamous letter.