6 ms·

Is that a monopsony though? The market for drug companies is global. If you were talking about doctors or some type of medical provider that was limited to pr

Is that a monopsony though? The market for drug companies is global. If you were talking about doctors or some type of medical provider that was limited to providing goods and services within a single jurisdiction, you might have a point.

dalke 11y ago
Even if it is a monopsony, the questions are 1) do they abuse its monopsony powers, and 2) what factors go ino defining 'efficient' and 'abuse'?
- chishaku 11y ago
  No, the monopsony designation is key to the comment I was responding to and the point I was trying to make. If there is no monopsony power, it's hard to make any claim of abuse on the part of the government. Single payer governments are leveraging their bargaining power like any rational market participant. Drug companies are not required to sell to them. They do so of their own volition at a price favorable to their bottom line, otherwise they wouldn't do it.
  - dalke 11y ago
    Most shareholders would be up in arms if instead of a 5% loss in profit due to government monopsony, the company CEO decided to shut down the company and not sell anything at all, so the statement "not required" isn't that relevant. "They do so of their own volition". No. You are expressing the Panglossian viewpoint that just because something happened it was the best choice. We know from experimental economics that people make decisions different than rational market theory would predict. The heads of large pharmaceutical companies are not exempt from this irrationality. Nor are all people in government short-sighted pennypinchers. The price negotiations also include the reality that some of the profits are turned into more research for future drugs. Hence the questions of what "efficient" and "abuse" means, which go into the pricing negotiations.
    - nickbauman 11y ago
      I think the "monopsony==inefficient market" argument is a fig leaf for the shibboleth that state economic actors are somehow "tainted" because they're not "private" enterprises. If a pharmaceutical firm were "negotiated" (tortured?) below their break-even somehow by state actors, they would simply fold. The entire concept of "below efficiency levels" is questionable here.
      - harryh 11y ago
        "below efficiency levels" isn't some sort of moral statement, it's a mathematical one. It's not a question of moving sellers below their break-even point (you're correct that would obviously never happen). It's about transferring producer surplus to consumer surplus and introducing deadweight loss into the system. https://en.wikipedia.org/wiki/Monopsony#Welfare_implications https://en.wikipedia.org/wiki/Monopsony#Welfare_implications explains it pretty clearly for the example of labor.
        dalke 11y ago
        "A mathematical one" in a simplified analysis which assumes a rational actor model which doesn't model what people actually do. Or if you want to use the model, the deadweight loss in your evaluation can instead be interpreted as the price that people are willing to pay for the good feelings of knowing that everyone in the country has accessible and affordable basic health care.
        harryh 11y ago
        > assumes a rational actor model which doesn't model what people actually do Sure, but in the case of drug prices in countries with national health systems we don't really have any reason to think that the model doesn't reflect reality. > the deadweight loss in your evaluation can instead be interpreted Yes, this is exactly my point! The science of economics makes no judgement about the relative moral values at play here. That may very well be a tradeoff people want to make. Or it might not. Economics doesn't comment on that question one way or another, it nearly provides data on the practical outcome of the decision.

dalke 11y ago

Even if it is a monopsony, the questions are 1) do they abuse its monopsony powers, and 2) what factors go ino defining 'efficient' and 'abuse'?

chishaku 11y ago
No, the monopsony designation is key to the comment I was responding to and the point I was trying to make. If there is no monopsony power, it's hard to make any claim of abuse on the part of the government. Single payer governments are leveraging their bargaining power like any rational market participant. Drug companies are not required to sell to them. They do so of their own volition at a price favorable to their bottom line, otherwise they wouldn't do it.
- dalke 11y ago
  Most shareholders would be up in arms if instead of a 5% loss in profit due to government monopsony, the company CEO decided to shut down the company and not sell anything at all, so the statement "not required" isn't that relevant. "They do so of their own volition". No. You are expressing the Panglossian viewpoint that just because something happened it was the best choice. We know from experimental economics that people make decisions different than rational market theory would predict. The heads of large pharmaceutical companies are not exempt from this irrationality. Nor are all people in government short-sighted pennypinchers. The price negotiations also include the reality that some of the profits are turned into more research for future drugs. Hence the questions of what "efficient" and "abuse" means, which go into the pricing negotiations.
  - nickbauman 11y ago
    I think the "monopsony==inefficient market" argument is a fig leaf for the shibboleth that state economic actors are somehow "tainted" because they're not "private" enterprises. If a pharmaceutical firm were "negotiated" (tortured?) below their break-even somehow by state actors, they would simply fold. The entire concept of "below efficiency levels" is questionable here.
    - harryh 11y ago
      "below efficiency levels" isn't some sort of moral statement, it's a mathematical one. It's not a question of moving sellers below their break-even point (you're correct that would obviously never happen). It's about transferring producer surplus to consumer surplus and introducing deadweight loss into the system. https://en.wikipedia.org/wiki/Monopsony#Welfare_implications https://en.wikipedia.org/wiki/Monopsony#Welfare_implications explains it pretty clearly for the example of labor.
      - dalke 11y ago
        "A mathematical one" in a simplified analysis which assumes a rational actor model which doesn't model what people actually do. Or if you want to use the model, the deadweight loss in your evaluation can instead be interpreted as the price that people are willing to pay for the good feelings of knowing that everyone in the country has accessible and affordable basic health care.
        harryh 11y ago
        > assumes a rational actor model which doesn't model what people actually do Sure, but in the case of drug prices in countries with national health systems we don't really have any reason to think that the model doesn't reflect reality. > the deadweight loss in your evaluation can instead be interpreted Yes, this is exactly my point! The science of economics makes no judgement about the relative moral values at play here. That may very well be a tradeoff people want to make. Or it might not. Economics doesn't comment on that question one way or another, it nearly provides data on the practical outcome of the decision.