4 ms·

Even though it's $750 per dose now, since they have exclusive control over the market they could decrease it to whatever whenever they wanted to starve competit

Even though it's $750 per dose now, since they have exclusive control over the market they could decrease it to whatever whenever they wanted to starve competitors.. probably after said competitors have invested in doing it.

nickff 11y ago
This is a possible strategy, but is rarely used, as it is very risky (, it is likely to cost a great deal of market share in the long term). I have looked into it, and found very few examples of a company which tried to lure a competitor into a market, then under-sell them. The opposite (under-sell competition to gain market share then hike prices) also appears to be quite unpopular in the real market, for the opposite reason (it will surely gain market share in the short term, but can cost a great deal of money). These are very popular theories, and there are a few examples of those who have tried both strategies, but those examples are almost all cautionary tales.
- unprepare 11y ago
  I think its somewhat common, and even occasionally successful: Amazon prime costs amazon money, and the original fire tablets were sold at cost - i suspect the new 50$ tablets are not very profitable either Walmart has commonly been accused of this practice for various products Google's original Nexus 7 tablet I believe Apple ended up losing money at least a quarter or two on the app store/itunes Granted there are few examples, but its certainly prevalent enough that its a legitimate business concern - the bigger disparity is that it takes a pretty enormous size for a company to succeed in such a tactic, I doubt turing has the kind of capital to lose that the likes of Walmart, Apple, Google and Amazon do.
  - nickff 11y ago
    Those are good examples, but I would argue that if a practice is sustainable (and often sustained), it is not problematic. If Amazon wishes to provide Prime at a loss to encourage customers to buy products which Amazon will make money on (enough to compensate for Prime), is there a problem? Would there be a problem if Amazon offered to ship things sooner in exchange for a promise that you would shop at their site more often (even if this promise plan cost them money)?
- sokoloff 11y ago
  caseysoftware's argument is not that they're trying to lure a competitor into the market, but rather the threat that, upon spending all the money to reverse-engineer the drug and enter the market, the incumbent could drop its price to $20/dose and the new entrant would be stranded with no way to recover their NRE costs in an economically relevant timeframe. Both companies might be profitable on a marginal cost basis at $20/dose, but only the incumbent would be profitable on an average cost basis. Because of this looming (unstated) threat, a competitor chooses to avoid the market.
  - nickff 11y ago
    Yes, I largely agree with the logic underlying your analysis (though not your conclusion), and did not mean my post to say that they were trying to lure competitors into the market, but more to say that they would (though I understand your reading of it probably makes more sense than my writing). If you believe that the eventual average cost would prevent a new entrant, the new entrant would have to know (or believe that there was a high probability of) the entrenched producer would cut prices upon the second producer's entry. I do not find this to be particularly likely. In any case, the first producer would be betting on the likelyhood of the second producer's estimation of the likelyhood of a downward price change by the first. This strains credulity (, in my view).[1] I think that if anything, your argument proves too much, as no company would even enter a competitive market if what you describe is the case. [1] https://en.wikipedia.org/wiki/Romanoff_and_Juliet_(play) https://en.wikipedia.org/wiki/Romanoff_and_Juliet_(play)
    - sokoloff 11y ago
      I'm not suggesting that companies avoid competition at all costs. I am suggesting that the right price to model when considering entering this market is $13-20, not $500+/dose.
  - nightpool 11y ago
    There is no need to reverse-engineer the drug, as its under an expired patent—so all of the processes and techniques used are open and theoretically (if the patent office has done its job right) should be easy for a competitor to reproduce. this is in fact one of the stated goals of the patent system: a limited monopoly in exchange for the advancement of public knowledge.
DanBC 11y ago
Buyers don't have to just go on price. They can take past behaviour into account. They could justify this in the name of ensuring continuing supply at a reasonable price. So, even if this company does always price their product at less than the new generics they've probably lost the trust of the buyers.

nickff 11y ago

This is a possible strategy, but is rarely used, as it is very risky (, it is likely to cost a great deal of market share in the long term). I have looked into it, and found very few examples of a company which tried to lure a competitor into a market, then under-sell them. The opposite (under-sell competition to gain market share then hike prices) also appears to be quite unpopular in the real market, for the opposite reason (it will surely gain market share in the short term, but can cost a great deal of money). These are very popular theories, and there are a few examples of those who have tried both strategies, but those examples are almost all cautionary tales.

unprepare 11y ago
I think its somewhat common, and even occasionally successful: Amazon prime costs amazon money, and the original fire tablets were sold at cost - i suspect the new 50$ tablets are not very profitable either Walmart has commonly been accused of this practice for various products Google's original Nexus 7 tablet I believe Apple ended up losing money at least a quarter or two on the app store/itunes Granted there are few examples, but its certainly prevalent enough that its a legitimate business concern - the bigger disparity is that it takes a pretty enormous size for a company to succeed in such a tactic, I doubt turing has the kind of capital to lose that the likes of Walmart, Apple, Google and Amazon do.
- nickff 11y ago
  Those are good examples, but I would argue that if a practice is sustainable (and often sustained), it is not problematic. If Amazon wishes to provide Prime at a loss to encourage customers to buy products which Amazon will make money on (enough to compensate for Prime), is there a problem? Would there be a problem if Amazon offered to ship things sooner in exchange for a promise that you would shop at their site more often (even if this promise plan cost them money)?
sokoloff 11y ago
caseysoftware's argument is not that they're trying to lure a competitor into the market, but rather the threat that, upon spending all the money to reverse-engineer the drug and enter the market, the incumbent could drop its price to $20/dose and the new entrant would be stranded with no way to recover their NRE costs in an economically relevant timeframe. Both companies might be profitable on a marginal cost basis at $20/dose, but only the incumbent would be profitable on an average cost basis. Because of this looming (unstated) threat, a competitor chooses to avoid the market.
- nickff 11y ago
  Yes, I largely agree with the logic underlying your analysis (though not your conclusion), and did not mean my post to say that they were trying to lure competitors into the market, but more to say that they would (though I understand your reading of it probably makes more sense than my writing). If you believe that the eventual average cost would prevent a new entrant, the new entrant would have to know (or believe that there was a high probability of) the entrenched producer would cut prices upon the second producer's entry. I do not find this to be particularly likely. In any case, the first producer would be betting on the likelyhood of the second producer's estimation of the likelyhood of a downward price change by the first. This strains credulity (, in my view).[1] I think that if anything, your argument proves too much, as no company would even enter a competitive market if what you describe is the case. [1] https://en.wikipedia.org/wiki/Romanoff_and_Juliet_(play) https://en.wikipedia.org/wiki/Romanoff_and_Juliet_(play)
  - sokoloff 11y ago
    I'm not suggesting that companies avoid competition at all costs. I am suggesting that the right price to model when considering entering this market is $13-20, not $500+/dose.
- nightpool 11y ago
  There is no need to reverse-engineer the drug, as its under an expired patent—so all of the processes and techniques used are open and theoretically (if the patent office has done its job right) should be easy for a competitor to reproduce. this is in fact one of the stated goals of the patent system: a limited monopoly in exchange for the advancement of public knowledge.

DanBC 11y ago

Buyers don't have to just go on price. They can take past behaviour into account. They could justify this in the name of ensuring continuing supply at a reasonable price. So, even if this company does always price their product at less than the new generics they've probably lost the trust of the buyers.