4 ms·

Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. Isn't that the market price, then? Market pr

by yason 11y ago

Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. Isn't that the market price, then? Market price is the price at which trading happens——above and below that are prices which at least one of the parties doesn't tolerate. And obviously volume discounts bring down the price in comparison to selling in smaller batches, this generally applies everywhere. I don't think any single company would sell at a lower price than what they can afford to ask. Note that part of the price can certainly be in goodwill, better public relations, or to win a bigger market share instead of cash. But that still is a net win for the seller, or they wouldn't be selling.

marcoperaza 11y ago
No, it's not what the market price would be in a system with a plurality of buyers. The demand side of the equation is heavily skewed when a single entity has the authority to make purchasing decisions for effectively the entire population. And since marginal costs are so low, the company is in a position where even a price that doesn't recoup their total unit costs is better than no sale at all to a population of tens of millions.
- yason 11y ago
  The fact that trade does take place proves that a market exists. Obviously it's a different market, selling to larger establishments or even countries versus selling to small retailers. Similarly goods markets and prices are slightly different in big cities versus remote country villages. But a market is a market, and when a trade closes that's the market price. If the merchandise and the price paid for it didn't benefit both the company and the buyer, there would be no trade.
  - marcoperaza 11y ago
    Any system with buyers and sellers is a "market", that's a meaningless standard. If all of the insurance companies in the US decided to merge and use their leverage to lower drug prices, it would be an illegal cartel. The resulting price would be the "market price" but not the price that would exist in a free market, which in most definitions includes prohibitions on such cartels. Governments can get away with it because they write the rules and there's no higher authority to stop them.

by yason 11y ago

marcoperaza 11y ago

No, it's not what the market price would be in a system with a plurality of buyers. The demand side of the equation is heavily skewed when a single entity has the authority to make purchasing decisions for effectively the entire population. And since marginal costs are so low, the company is in a position where even a price that doesn't recoup their total unit costs is better than no sale at all to a population of tens of millions.

yason 11y ago
The fact that trade does take place proves that a market exists. Obviously it's a different market, selling to larger establishments or even countries versus selling to small retailers. Similarly goods markets and prices are slightly different in big cities versus remote country villages. But a market is a market, and when a trade closes that's the market price. If the merchandise and the price paid for it didn't benefit both the company and the buyer, there would be no trade.
- marcoperaza 11y ago
  Any system with buyers and sellers is a "market", that's a meaningless standard. If all of the insurance companies in the US decided to merge and use their leverage to lower drug prices, it would be an illegal cartel. The resulting price would be the "market price" but not the price that would exist in a free market, which in most definitions includes prohibitions on such cartels. Governments can get away with it because they write the rules and there's no higher authority to stop them.