The Oocyte Cartel

by on June 17, 2013 at 7:20 am in Economics, Law, Medicine | Permalink

The Society for Assisted Reproductive Technology (SART) represents more than 85 percent of the assisted reproduction industry. SART requires that its members work only with agencies that limit compensation to egg-donors to around $5000 or a maximum of $10,000 (figures decided upon by the ethics committee of an affiliated organization, The American Society for Reproductive Medicine (ASRM)). In other words, ASRM-SART acts as a buyer’s cartel.

In 2011, Lindsay Kamakahi launched a class action suit against ASRM-SART challenging  their horizontal price-fixing agreement as per se illegal under the Sherman Antitrust Act. ASRM-SART tried to have the case dismissed but a judge recently denied the dismissal in the process making it clear that the plaintiffs have a good case.

ASRM-SART argue that their maximum price is really about protecting women and that compensation “should not be so excessive as to constitute undue inducement.” Egg donation does involve extensive screening, time and some health risks. One would think, however, that the proper response for those interested in protecting women would be to ensure that the women are fully informed and that they are paid high wages not low wages.

The paternalistic policy of the ASRM-SART especially rankles because it applies only to women, sperm donations are not regulated. Of course, sperm donation isn’t risky but we also don’t see laws limiting the wages of miners to protect miners (mostly men) from “undue inducement.” The societal expectation seems to be that men are appropriately motivated by self-interest but women may be appropriately motivated only by altruism.

I am in agreement with Kimberly D. Krawiec who writes in her excellent paper Sunny Samaritans and Egomaniacs: Price-Fixing in the Gamete Market:

It is ASRM’s paternalistic and misguided attempts to control oocyte donor compensation through the same type of professional guidelines that courts have rejected when employed by engineers, lawyers, dentists, and doctors that should raise an ethical red flag.

pricecontrolsrentsASRM-SART surely believe that they are doing good but I think it no accident that they also do well from a policy that reduces the price of their inputs. A price controlled below the market price generates rents. In the traditional analysis, the rents are dissipated away by long-lines, a form of rent seeking (see Modern Principles–first edition now a bargain!). It’s also possible, however, for suppliers to grab up the rents, especially suppliers of complementary goods.

For example, it’s often been pointed out that in the organ donor market the hospitals, surgeons and executives all get paid and paid well; the only person not getting paid is the person who provides the transplant organ. But we can say more–one of the reasons the hospitals, surgeons and executives get paid well is precisely that the donor is not paid. The shortage created by the price control drives the demander’s willingness to pay upward and some of the difference between the willingness to pay and the maximum legal price is captured by the suppliers of complementary inputs. How do we know? In the 1990s, entry into the transplant business grew much faster than did the supply of transplant organs. In fact, transplants were so profitable there was a rush to transplant that increased the number of centers but drove down center volume thereby reducing patient survival rates.

Similarly, by limiting egg-supply the suppliers of assisted reproductive services may be able to increase their share of the total gains from trade.

Although ASRM-SART may profit from restricting donor compensation there is another issue at large, the repugnance constraint. The repugnance and disgust centers of the brain are old and deep and often revolve around issues of body integrity, body products, hygiene, sex and death. Birth treads uneasily in many of these waters already and egg donation adds to this volatile mix issues of gender, personhood, identity and genetics all of which prime for a repugnance storm. The plaintiff’s case is sound but if the antitrust laws prevent ASRM-SART from limiting prices–or saying that they limit prices–and if egg donation were to become even more of a market in everything might there not be a backlash and an outright ban on compensated donors, as is the case in many other countries and for transplant organs in this country? I hope not but it is a real possibility.

The ban on compensated transplant organ donation has led to hundreds of thousands of excess deaths. A ban on compensated sperm and egg donation would lead to a dearth of lives.

1 anon June 17, 2013 at 7:32 am

dearth of lives

Excellent phrase.

2 Frederic Mari June 17, 2013 at 8:46 am

Bof. It’s not like there is a shortage of babies, at the macro level.

It’d be simpler (but less economic sciency-sounding) to say that this would lead to some would-be parents being frustrated and unhappy. Though I guess he could have said that some would-be parents would suffer a negative shock to their consumer surplus and some would be excluded from the market altogether.

3 Cliff June 17, 2013 at 10:53 am

There’s always a shortage of babies who will grow up to be net contributors.

4 Frederic Mari June 17, 2013 at 11:28 am

Different issue. That’s social Darwinism of some kind. You could try. Would people vote for “Not unless both parents jointly earn a $100k will they be allowed to have a kid”?

5 mulp June 17, 2013 at 12:27 pm

But there is an excess of babies who will become net liabilities.

We need to employ creative destruction to the net liabilities to address the shortage of organs for the net contributors if we are in a true market society.

6 Dangerman June 17, 2013 at 10:54 am

“It’s not like there is a shortage of babies, at the macro level.”

Are you sure?

http://www.amazon.com/books/dp/1594036411

7 Frederic Mari June 17, 2013 at 11:30 am

Yes. I am not worried about things 50 years down the line and the overpopulation peak may be enough to kill us all/lead to staggeringly bad outcomes, whether or not it will then proceed to decline.

8 Andrew' June 17, 2013 at 1:17 pm

It would seem the overpopulation problem and the inability to produce individuals who produce green revolutions are one and the same.

And I’m not sure how different these issues are if genetics is a thing and parents with good genetics have high opportunity costs.

9 Peter Schaeffer June 17, 2013 at 10:53 am

anon,

Not so much a “dearth of lives”, but a “dearth of some lives”. The real story here (in my estimation) is that some (many?) prospective parents are willing to pay $50K (or even $100K) for the “right” egg. Apparently, Ivy League newspapers have frequently contained advertisements for egg donors. Of late, targeted Facebook adds have been used as well.

What this demonstrates is a “revealed preference” for nature over nurture. In other words, egg buyers strongly believe in nature and are willing to commit serious money to their views. If a bet is a tax on BS, then Ivy League egg buyers are clearly willing to pay dearly for (what they see as) “truth”.

It easy to see this as an anti-competitive scheme on the part of the SART folks to maximize rents. However, a politically correct effort to suppress buyer preferences may be a germane influence as well. Indeed, it’s rather likely that the SART industry dearly wants to avoid a visible prices where some eggs are a lot more equal than others.

10 KLO June 17, 2013 at 1:46 pm

Is it a revealed preference for nature over nurture? I would agree if the people spending this money were incapable of also spending significant resources to raise their child, but that is unlikely to be the case. If anything, these prospective parents are pursuing the no stone left unturned approach rather than the nature over nurture approach.

11 Peter Schaeffer June 17, 2013 at 11:46 pm

KLO,

The parents paying $50K for an egg will no doubt spending plenty on the child as well. However, if they didn’t value nature, they would buy the $5K egg and shift the incremental $45K to enhanced nurture.

The revealed preference is that they aren’t doing so.

12 Peter Schaeffer June 18, 2013 at 7:55 am

KLO,

From another perspective extremely high egg prices are perfectly rational. The biological basis for human perceptions of beauty (male and female) is a genetic presumption of the value of nature (and fertility in females). If humans didn’t place (biologically and subconsciously) a huge value on nature, what difference would it make who a man (or woman) had children with? In real life, men vastly prefer attractive mates over less attractive females (and a very specific waist – hips ratio). That’s a strong indication of a genetically encoded belief in the value of nature.

One commenter below suggests that Sophia Loren’s eggs might be worth $1 million each. A very valuable ‘truth’ it would seem.

13 Andrew' June 17, 2013 at 7:38 am
14 Norman Pfyster June 17, 2013 at 8:50 am

“…hundreds of thousands of excess deaths.” People are dying more than once?

15 Andrew' June 17, 2013 at 10:23 am

Or we are making too many people in the first place. Or excessive deaths refers to over-acting of death scenes.

16 Frederic Mari June 17, 2013 at 8:50 am

More generally, with all those questions, is ‘Where do we stop?’

I cannot quite justify in pure economic terms why I support the legalisation of prostitution but remain extremely cautious about legalising organ donation for cash.

I can try to argue that no ‘permanent’ damage is being done to the prostitute but that could still be twisted back by insisting that prostitution more often than not comes with psychological scars (and I wouldn’t deny them).

17 Philo June 17, 2013 at 9:18 am

A great post. I would complain only about this: “ASRM-SART surely believe that they are doing good . . . .” Of course, ASRM-SART is an organization, which does not literally have an opinion about anything; but let us not quarrel with the usual practice of attributing to organizations some of the opinions of (large numbers of) their members. My complaint concerns the *sincerity* of this alleged belief on the part of the members: in general, how sincere are obviously self-serving “beliefs”? And if it’s not sincere, it’s not really a belief.

18 Rahul June 17, 2013 at 10:13 am

As a technicality, what if SART reorganizes itself as a Group purchasing organization (e.g. Amerinet)?

Would that make this legally ok? What’s the difference between Amerinet negotiating for cheap sutures versus SART setting a low egg price?

I’m curious about the legal angle.

19 mulp June 17, 2013 at 12:48 pm

If they were negotiating the price of eggs, whether chicken or human, they are buying a product.

If you see human eggs as a product in a market, then why aren’t babies also products in a market. And why isn’t a brain dead otherwise healthy man on life support a product that is by current law forced on a hospital as a liability when it could be a product in a market.

But let’s say a now fairly healthy young adult released from the hospital with legs blown off in the Boston bombing who will be a net liability because without hugely expensive medical devices and care, they will most likely unproductive, but with the expensive care, they will be normally productive but unable to cover the cost of care. Virtually no insurance covers this kind of post discharge care, not even Medicare, the gold plated care for unproductive people, nor even the VA where lip service is given to the honorable service and where the cutting edge research is done, but without the funding to provide replacement/refurbed limbs every three years.

If human eggs are market goods like chicken eggs, then aren’t people market goods like chickens? You keep chickens around as long as they are productively laying eggs.

And keep in mind the conservative/libertarian/Republican compact to defeat Democrats and gain power requires an egg to considered a human life as one of several “wedge” issues (others being killing “them” is virtue – execution, war, lots of nuclear weapons).

20 ANON June 17, 2013 at 3:46 pm

> If human eggs are market goods like chicken eggs, then aren’t people market goods like chickens? You keep chickens around as long as they are productively laying eggs.

Some people sell their hair on the market. Same as selling wool from sheep – and sheep are sold on the market!

Start up the death camps, I guess

21 Engineer Dad June 17, 2013 at 3:50 pm

Mulp
When reading your comments, I easily imagine the unpleasent grinding sound of mental on mental that resuls from the missing teeth of your central flywheel.

22 asdf June 17, 2013 at 9:28 am

Anything that feels like eugenics scares people. Already its obvious that people only want the best possible donor egg/sperm for their children (eugenics). The #1 fear of eugenics appears to be that some people (the rich) will have access to it while other people (the poor) will not. This will only exacerbate already existing inequality, perhaps finally ending the dreaded “reversion to the mean” and creating a permanent class system. To the extent eugenics is allowed people want to remove the financial component as much as possible.

23 T. Gracchus June 17, 2013 at 10:22 am

Denial of a motion to dismiss means the claims are plausible and not barred as a matter of law. Does not mean that the plaintiffs have a good case, it means they have pled a claim properly.
Looks like they do, but that is not an inference to be drawn from the order.

24 Alex Tabarrok June 17, 2013 at 10:25 am

I mean that if you read the dismissal the judge makes it clear that the plaintiffs have a good case, at least that was my read. Wording slightly changed to clarify.

25 Rahul June 17, 2013 at 11:31 am

That link seems broken.

26 Alex K. June 17, 2013 at 10:32 am

What are some of the best studies/books on the subject of compensated organ donations ?

(I _will_ google it, but I though I should use the filters of marginal revolution writers/readers first)

27 Mark Thorson June 17, 2013 at 10:41 am

I’d say Sophia Loren’s eggs ought to be worth about a million bucks apiece, and in a fair society she’d be allowed to auction them off.

28 Yancey Ward June 17, 2013 at 11:05 am

ASRM-SART argue that their maximum price is really about protecting women and that compensation “should not be so excessive as to constitute undue inducement

Hard to find an argument anywhere on any subject that is more full of shit.

29 NPW June 17, 2013 at 12:18 pm

I suffered undue inducement to come to work today. As in, no work, no pay. Please don’t protect me. In fact, can you please make it more undue?

Also, I’m pretty sure that some of the medical professionals need to be protected from undue inducement also. Their salaries are much too high. ASRM-SART should get on that.

30 Marc Roston June 17, 2013 at 12:21 pm

This reminds me very much of the controversies over the ownership of a corpse after death. The biotech industry benefits enormously from the “donation” of bodies to science, when in fact the tissues are used for great profit with no means to compensate the estate of the deceased.

http://reason.com/archives/2007/02/07/who-owns-your-body-parts

31 KLO June 17, 2013 at 1:51 pm

Or, more abstractly, the NCAA’s prohibition on paying athletes more than a nominal amount, lest we ruin the spirit of amateur competition. In the NCAA’s case and perhaps here, there is some force to the argument that money will ruin things. But, when a certain group are profiting unfairly off of others, the moral case for the status quo is rather weak.

32 Glen June 17, 2013 at 2:56 pm

Alex, why did you choose to present this using a supply-and-demand diagram with a price ceiling? As you indicated in your first paragraph, this is a buyers’ cartel, which would presumably be better shown using a monopsony diagram. The welfare effects would be similar, of course. But presenting it as a price ceiling diverts attention from the question of how this monopsony came to be — which will naturally affect the question of whether antitrust action is justified. Was the government involved in creating this cartel, or did it happen through private action alone? What, if anything, is stopping new entrants from offering higher prices for eggs?

33 FC June 17, 2013 at 4:16 pm

What, federal government doesn’t provide free ova? It’s a war on women, it is.

34 Pseudo Register June 17, 2013 at 4:34 pm

Isn’t the Sherman Anti-Trust Act a government intervention in the economy?

Portions of the essay make ASRM-SART sound like a government agency, what with the seamless transition to a discussion of the statutory prohibitions on organ selling.

Maybe I just missed it. I’m not complaining I guess, just a little puzzled given the generally libertarian-leaning nature of many posts.

Another market that might benefit from… (I was about to say “less regulation”)… fewer restrictions is that of blood and blood products. Most states have laws requiring hospitals to use donated blood before blood from paid “donors”. These laws were passed mostly before the extensive screening of blood donors and extensive testing of blood that is now common — and required by the FDA and AABB (which no longer stands for American Association of Blood Banks).

35 Dsgntd_Plyr June 17, 2013 at 5:43 pm

“ASRM-SART argue that their maximum price is really about protecting women and that compensation “should not be so excessive as to constitute undue inducement.”

Exact same logic the NCAA uses wrt not paying athletes: “We must protect the student-athletes from people who would take advantage of them by paying them money. I mean, then they wouldn’t be amateurs. And isn’t not getting paid awesome?”

36 18in32 June 18, 2013 at 5:54 pm

“The ban on compensated transplant organ donation has led to hundreds of thousands of excess deaths.”
Excess deaths meaning unlived years, I think? Granted we do speak in that shorthand, though neither the presence nor the absence of transplants had any effect on anyone’s immortality.

“One would think, however, that the proper response for those interested in protecting women would be to ensure that the women are fully informed and that they are paid high wages not low wages.”
Is the author relying upon a premise — the best thing for people is to have more money — that needs further examination? How you get the money matters an awful lot, too, doesn’t it?

When I hear words like “paternalistic,” I take a look in the mirror. Sometimes the person looking back at me looks like my father’s son, and sometimes like my son’s father. One man’s paternalism is another man’s compassion.

I do not begrudge the author having come to a conclusion… but this is a more complicated issue than the author seems to want to acknowledge.

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