3 ms·

That's a strange argument. If there are few suppliers in the market, and inelastic demand, they should be able to pretty much set their own price, at least enou

That's a strange argument. If there are few suppliers in the market, and inelastic demand, they should be able to pretty much set their own price, at least enough to be profitable. The only way that prices trend to zero profit are in commodity markets with a lot of competitors.

HarryHirsch 8y ago
In most countries that aren't the US, the government is the biggest purchaser of medicines, and that is what keeps prices down. That's only a theory, though. But the observable facts are that in the generics market there are only a few players, and profits in the generics market are low. If the economic theory can't explain that, it's the theory that is wrong.
- rayiner 8y ago
  The theory isn't wrong, it's what you'd expect. Outside the U.S., governments exercise monopsony power to keep prices artificially low, which results in a less-than-efficient amount of production of the generic: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony. When you make prices artificially low you reduce the incentive to invest, and the result you're seeing is Econ 101. What's happening inside the U.S. is harder to model. The patented versions of insulin are somewhat better than the generic ones. There might be insufficient incentives for people with health insurance to prefer the slightly inferior but much cheaper version. That leaves only those without insurance to pay for the generic, and that's not much of a market. As a biologic, insulin is expensive to make even the generic versions. And people who have no insurance probably have little ability to afford it.
  - HarryHirsch 8y ago
    What does "artificially low" even mean in this context? Valeant have demonstrated that you can drop research and raise prices on orphan drugs to stratospheric levels, and Valeant's owners are the only people that benefit. That can't be a desirable outcome for public health. When the government leans on manufacturers at least prices have some relationship with the costs of production.

HarryHirsch 8y ago

In most countries that aren't the US, the government is the biggest purchaser of medicines, and that is what keeps prices down. That's only a theory, though. But the observable facts are that in the generics market there are only a few players, and profits in the generics market are low. If the economic theory can't explain that, it's the theory that is wrong.

rayiner 8y ago
The theory isn't wrong, it's what you'd expect. Outside the U.S., governments exercise monopsony power to keep prices artificially low, which results in a less-than-efficient amount of production of the generic: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony. When you make prices artificially low you reduce the incentive to invest, and the result you're seeing is Econ 101. What's happening inside the U.S. is harder to model. The patented versions of insulin are somewhat better than the generic ones. There might be insufficient incentives for people with health insurance to prefer the slightly inferior but much cheaper version. That leaves only those without insurance to pay for the generic, and that's not much of a market. As a biologic, insulin is expensive to make even the generic versions. And people who have no insurance probably have little ability to afford it.
- HarryHirsch 8y ago
  What does "artificially low" even mean in this context? Valeant have demonstrated that you can drop research and raise prices on orphan drugs to stratospheric levels, and Valeant's owners are the only people that benefit. That can't be a desirable outcome for public health. When the government leans on manufacturers at least prices have some relationship with the costs of production.