5 ms·

Sadly it is not about how much manufacturing and research costs. But about how much they can profit from it.

toyg 7y ago
I agree, I was just noticing that such a ridiculous margin should allow for other actors to step in at lower price points. Maybe maire's sister does not have half a mil lying around to kickstart the experiment, but with these numbers, sooner or later someone likely will.
- inflatableDodo 7y ago
  >Maybe maire's sister does not have half a mil lying around to kickstart the experiment The set of people with the condition probably does. I wonder if a kickstarter for generics would be successful?
- nroach 7y ago
  The disincentive to new entrants is that the existing market participants can always drop prices enough to make the new entrant unprofitable. If you're in a control of a monopoly or oligopoly, you monitor for signs of new entrants, and when they begin to raise or deploy capital, you offer to buy them out or drop your prices to unsustainable levels and wait for the new entrant to run out of capital.
  - aeorgnoieang 7y ago
    I'm sure there are other barriers as, if what you are describing is complete, one could earn a pretty riskless profit by some combination of (a) 'threatening' to become a new entrant in the market for an expensive drug; (b) stockpiling the existing entrants drugs when they drop their price to try to drive you out of business. I remember reading a book about the history of some (famous) chemical company in the U.S. – Dow? Dupont? – doing exactly what I described to compete with the at-the-time existing German chemical company cartel.
    - Symmetry 7y ago
      For more regulated classes of drug the FDA doesn't just control the conditions under which it is made but also assigns production quotas to different manufacturers. The prime worry, I believe, is that if too much of a controlled substance is produced and it isn't sold then it might end up being sold illegally. There are also issues where allowing people to produce a drug willy-nilly would stretch the FDA's inspection capacity and allow the possibility of defective drugs being made. Plus there's the issue of whether a drug can remain safe to use after long periods of time at all.
- marnett 7y ago
  Wouldn’t a profit maximizing capitalist just invest in these unregulated pharmaceutical companies as opposed to starting an unprofitable pricing war?
  - toyg 7y ago
    It depends on how much profit will be generated by investing the same amount of capital in the two activities. Say that half a mil in pharma shares return you 5% yearly; if you can generate more than that with a price-competing activity (also pricing in the risk to your capital, of course), you should do that instead. In this particular case, there are actors for whom the profit would not be directly generated by sales of goods, but by the amount they save elsewhere in their operations - which, depending on various factors, might actually be multiples.
  - roenxi 7y ago
    You can't really invest, because the investment opportunity is controlled by other profit maximising capitalists who will charge an arm and a leg for the opportunity. You could find a profit maximising capitalist who would be happy to enter the market and compete for a fraction of the outrageous profits - that would make a lot more money than paying to invest as is more usual. In theory there only needs to be a handful or so and that would be enough to bring the market back down close to cost of production. However, it seems likely that government regulation would disrupt that process somehow, otherwise it would have happened by now.
gingabriska 7y ago
In that case, why aren't there rules to limit profit margins on live saving drugs?
- zip1234 7y ago
  Once drugs are not protected by patents, competition should reduce prices. Unless competition is not working because of price fixing or something else related.
  - kristopolous 7y ago
    It's so much more lucrative to just slice the orphaned drug catalog up in a cartel structure. You charge robbery rates for drugs A, C and F and I'll take B, D and E. We both make lots of money and don't have to worry about each other. Competition assumes sellers don't collaborate and negotiate but they do all the time.
    - cloverich 7y ago
      More pointedly competition only works when it exists.
  - braythwayt 7y ago
    That's not how competition works. How do street drug dealers compete with each other? Not by lowering prices. No. They actually attempt to monopolize their territories by either eliminating or merging with their competitors, until a stable state is reached. They then set their prices to maximize margins and profits. This continues until something happens to destabilize the market, at which point there is some kind of struggle or even war, which stops when another stable state is reached by eliminating or merging the competitors. Without regulation to prevent the creation of monopolies and cartels, this happens in legitimate businesses just as much as street drug dealers. Competition by lowering price does happen, but when it does, it is part of the unstable phase that ends when another stable monopoly or cartel forms, at which point margins go right back up.
    - 7y ago

toyg 7y ago

I agree, I was just noticing that such a ridiculous margin should allow for other actors to step in at lower price points. Maybe maire's sister does not have half a mil lying around to kickstart the experiment, but with these numbers, sooner or later someone likely will.

inflatableDodo 7y ago
>Maybe maire's sister does not have half a mil lying around to kickstart the experiment The set of people with the condition probably does. I wonder if a kickstarter for generics would be successful?
nroach 7y ago
The disincentive to new entrants is that the existing market participants can always drop prices enough to make the new entrant unprofitable. If you're in a control of a monopoly or oligopoly, you monitor for signs of new entrants, and when they begin to raise or deploy capital, you offer to buy them out or drop your prices to unsustainable levels and wait for the new entrant to run out of capital.
- aeorgnoieang 7y ago
  I'm sure there are other barriers as, if what you are describing is complete, one could earn a pretty riskless profit by some combination of (a) 'threatening' to become a new entrant in the market for an expensive drug; (b) stockpiling the existing entrants drugs when they drop their price to try to drive you out of business. I remember reading a book about the history of some (famous) chemical company in the U.S. – Dow? Dupont? – doing exactly what I described to compete with the at-the-time existing German chemical company cartel.
  - Symmetry 7y ago
    For more regulated classes of drug the FDA doesn't just control the conditions under which it is made but also assigns production quotas to different manufacturers. The prime worry, I believe, is that if too much of a controlled substance is produced and it isn't sold then it might end up being sold illegally. There are also issues where allowing people to produce a drug willy-nilly would stretch the FDA's inspection capacity and allow the possibility of defective drugs being made. Plus there's the issue of whether a drug can remain safe to use after long periods of time at all.
marnett 7y ago
Wouldn’t a profit maximizing capitalist just invest in these unregulated pharmaceutical companies as opposed to starting an unprofitable pricing war?
- toyg 7y ago
  It depends on how much profit will be generated by investing the same amount of capital in the two activities. Say that half a mil in pharma shares return you 5% yearly; if you can generate more than that with a price-competing activity (also pricing in the risk to your capital, of course), you should do that instead. In this particular case, there are actors for whom the profit would not be directly generated by sales of goods, but by the amount they save elsewhere in their operations - which, depending on various factors, might actually be multiples.
- roenxi 7y ago
  You can't really invest, because the investment opportunity is controlled by other profit maximising capitalists who will charge an arm and a leg for the opportunity. You could find a profit maximising capitalist who would be happy to enter the market and compete for a fraction of the outrageous profits - that would make a lot more money than paying to invest as is more usual. In theory there only needs to be a handful or so and that would be enough to bring the market back down close to cost of production. However, it seems likely that government regulation would disrupt that process somehow, otherwise it would have happened by now.

gingabriska 7y ago

In that case, why aren't there rules to limit profit margins on live saving drugs?

zip1234 7y ago
Once drugs are not protected by patents, competition should reduce prices. Unless competition is not working because of price fixing or something else related.
- kristopolous 7y ago
  It's so much more lucrative to just slice the orphaned drug catalog up in a cartel structure. You charge robbery rates for drugs A, C and F and I'll take B, D and E. We both make lots of money and don't have to worry about each other. Competition assumes sellers don't collaborate and negotiate but they do all the time.
  - cloverich 7y ago
    More pointedly competition only works when it exists.
- braythwayt 7y ago
  That's not how competition works. How do street drug dealers compete with each other? Not by lowering prices. No. They actually attempt to monopolize their territories by either eliminating or merging with their competitors, until a stable state is reached. They then set their prices to maximize margins and profits. This continues until something happens to destabilize the market, at which point there is some kind of struggle or even war, which stops when another stable state is reached by eliminating or merging the competitors. Without regulation to prevent the creation of monopolies and cartels, this happens in legitimate businesses just as much as street drug dealers. Competition by lowering price does happen, but when it does, it is part of the unstable phase that ends when another stable monopoly or cartel forms, at which point margins go right back up.
  - 7y ago