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And the pharmaceutical companies are a monopoly. Usually we use the market to set the prices of goods which works unreasonably well. But the pharmaceutical mar

And the pharmaceutical companies are a monopoly. Usually we use the market to set the prices of goods which works unreasonably well. But the pharmaceutical market is so far divorced from any normal market forces that what's the right price probably has very little relation to the prices charged. And I think there are definitely two different discussions to have. "How much should be spent on pharmaceuticals" and "what should the unit price be?". The holy grail are solutions that reduce the cost of bringing a drug to market. But I'm also very interested in solutions that reduce the unit price without affecting total pharmaceutical spend.

rayiner 7y ago
Drug companies are not a monopoly any more than Apple is a monopoly because only Apple can sell iPhones. While a company may have a monopoly on making a specific branded drug, its rare that there is just a single branded drug on the market that can address a particular condition. Look how many different drugs are FDA approved for treating HIV: https://www.webmd.com/hiv-aids/aids-hiv-medication https://www.webmd.com/hiv-aids/aids-hiv-medication. Or the long list of drugs approved for treating high blood pressure: https://www.rxlist.com/high_blood_pressure_hypertension_medications/drugs-condition.htm https://www.rxlist.com/high_blood_pressure_hypertension_medi.... Or insulin: https://www.drugs.com/drug-class/insulin.html https://www.drugs.com/drug-class/insulin.html. Drugs aren’t a perfectly competitive market involving commodities, like say wheat or corn, but there is oligopolistic competition similar to say mobile phones, internet search, or social media. Would having the government set prices in those markets improve efficiency? Or are they competitive enough—even if not perfectly competitive—where the government probably wouldn’t do better?
- JamesBarney 7y ago
  You seem to be looking at this like "price setting by proxy" but I think a more natural view would be "stopping the enforcement of government mandated price segmentation". I'm in 100% agreement that the government shouldn't get involved in markets that look anything like what you'd see in an ECON101 course. But the prices of drugs and healthcare in general are set in a way that is so far removed from ECON101 models that I don't think you can call the price of any pharmaceutical medicine a "market price". There are 100's of market prices, the price negotiated between any given oligopolistic supplier of drugs with a oligopsonic collection of governments and large insurance companies(which all set different price). The actual price an individual pays for a given medication and insurance, and the price the oligopolistic supplier sets for a lone individual. I'm not sure why we call the price set by one relationship(uninsured individual with large oligopolistic supplier) with the largest negotiating imbalance the "market price". It seems like this policy has two effects. "Reduce the unit price of drugs to individuals". Good because more people can access medication, and consumers pay less. "Reduce funding available for drug R&D". Probably bad because this reduces the number of future drug we have. I'm don't know whether this will be good or bad on net for U.S. consumers in the long run but I think it requires analysis far more detailed than assuming the highest of a 100 possible prices for a medication is "the market price" and any deviation from it is creating an inefficient market.(Which is a good assumption for most near-perfect markets).

rayiner 7y ago

Drug companies are not a monopoly any more than Apple is a monopoly because only Apple can sell iPhones. While a company may have a monopoly on making a specific branded drug, its rare that there is just a single branded drug on the market that can address a particular condition. Look how many different drugs are FDA approved for treating HIV: https://www.webmd.com/hiv-aids/aids-hiv-medication https://www.webmd.com/hiv-aids/aids-hiv-medication. Or the long list of drugs approved for treating high blood pressure: https://www.rxlist.com/high_blood_pressure_hypertension_medications/drugs-condition.htm https://www.rxlist.com/high_blood_pressure_hypertension_medi.... Or insulin: https://www.drugs.com/drug-class/insulin.html https://www.drugs.com/drug-class/insulin.html. Drugs aren’t a perfectly competitive market involving commodities, like say wheat or corn, but there is oligopolistic competition similar to say mobile phones, internet search, or social media. Would having the government set prices in those markets improve efficiency? Or are they competitive enough—even if not perfectly competitive—where the government probably wouldn’t do better?

JamesBarney 7y ago
You seem to be looking at this like "price setting by proxy" but I think a more natural view would be "stopping the enforcement of government mandated price segmentation". I'm in 100% agreement that the government shouldn't get involved in markets that look anything like what you'd see in an ECON101 course. But the prices of drugs and healthcare in general are set in a way that is so far removed from ECON101 models that I don't think you can call the price of any pharmaceutical medicine a "market price". There are 100's of market prices, the price negotiated between any given oligopolistic supplier of drugs with a oligopsonic collection of governments and large insurance companies(which all set different price). The actual price an individual pays for a given medication and insurance, and the price the oligopolistic supplier sets for a lone individual. I'm not sure why we call the price set by one relationship(uninsured individual with large oligopolistic supplier) with the largest negotiating imbalance the "market price". It seems like this policy has two effects. "Reduce the unit price of drugs to individuals". Good because more people can access medication, and consumers pay less. "Reduce funding available for drug R&D". Probably bad because this reduces the number of future drug we have. I'm don't know whether this will be good or bad on net for U.S. consumers in the long run but I think it requires analysis far more detailed than assuming the highest of a 100 possible prices for a medication is "the market price" and any deviation from it is creating an inefficient market.(Which is a good assumption for most near-perfect markets).