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This is classic example of monopoly pricing. Gilead developed a drug the federal government has minted as special. They can charge whatever they want for it bec

This is classic example of monopoly pricing. Gilead developed a drug the federal government has minted as special. They can charge whatever they want for it because there's a period of effectively unlimited demand (until a vaccine hits the market), and a very narrow band of supply. Products like this have what you might've learned about in econ 101 as inelastic demand -- the demand for the product remains the same regardless of the price. They know people and/or insurance companies will pay for it, so why not charge whatever they want while they can? Of course, there is a very simple way to bring down the price and reduce the overall cost burden to the economy: a price ceiling. The government could just say, "sorry, you can't bring that drug to market unless it's below X dollars". But the Federal government has been entirely unwilling to exercise its power to enact price controls on drug companies. At the same time, other countries do this all the time, driving up the prices we pay even more. It's insane.

metiscus 6y ago
In the absence of compulsory production and under the current intellectual property rights scheme, price ceilings cause shortages all other things held equal.
- ajsharp 6y ago
  In a more normal market with fixed supply, such as rent control, that's true. Much less so in a monopoly market with largely intellectual property.
  - metiscus 6y ago
    It's not just intellectual property - it's a capital intensive bioengineering project with probably a half billion or so capex and even more for an outsider to bootstrap.
    - ajsharp 6y ago
      Fair enough. Still, there are no supply dynamics here where a price ceiling would cause supply issues.
sdinsn 6y ago
> This is classic example of monopoly pricing. No, it's a classic example of a expensive product (due to R&D costs) that has a monopoly because no one has developed anything close to it, partly because of Gilead's knowledge and partly due to constrictive government regulations.
- ajsharp 6y ago
  I'm curious: what would be a per-unit price you would consider too high? Of course it has high R&D costs -- no one is suggesting otherwise. I'm not even sure what your point is -- that it is monopoly pricing, but because they have a competitive advantage and because they can charge a high price for it?
  - sdinsn 6y ago
    > what would be a per-unit price you would consider too high? If the price is too high, then no one will purchase it. Therefore, Gilead makes no money. Obviously, Gilead wants to make money. So they will decrease the price to attract customers, ultimately finding a ideal price that maximizes the balance between profit margin and customer volume. There is no such thing as 'too high' of a price, as long as you make the safe assumption that companies are in fact interested in making money.
    - ajsharp 6y ago
      > If the price is too high, then no one will purchase it. Therefore, Gilead makes no money. This is great in theory but is entirely inapplicable and utter non-sense in practice in a health care context, and in this instance in particular. My original commend made mention of inelasticity of demand. When people's lives are at risk, there is no demand curve and equilibrium. The price is what the supplier says it is. It has nothing to do with what the market will bear, or whatever other macro 101 theoretical framework you're applying to this reality. It's different in almost every possible way than say, going to the grocery store and deciding if a box of cookies is too expensive for the value you're deriving, and whether this alternative or that alternative is a better value. Maybe you don't know much about how billing and payments in the health care system works, or the exorbitant costs for things that happen in a hospital setting that are completely untethered to what anyone would be willing to pay in a normal market. > Obviously, Gilead wants to make money. So they will decrease the price to attract customers, ultimately finding a ideal price that maximizes the balance between profit margin and customer volume. Again, this isn't a b-school case study. Your mental model doesn't apply here.

metiscus 6y ago

In the absence of compulsory production and under the current intellectual property rights scheme, price ceilings cause shortages all other things held equal.

ajsharp 6y ago
In a more normal market with fixed supply, such as rent control, that's true. Much less so in a monopoly market with largely intellectual property.
- metiscus 6y ago
  It's not just intellectual property - it's a capital intensive bioengineering project with probably a half billion or so capex and even more for an outsider to bootstrap.
  - ajsharp 6y ago
    Fair enough. Still, there are no supply dynamics here where a price ceiling would cause supply issues.

sdinsn 6y ago

> This is classic example of monopoly pricing. No, it's a classic example of a expensive product (due to R&D costs) that has a monopoly because no one has developed anything close to it, partly because of Gilead's knowledge and partly due to constrictive government regulations.

ajsharp 6y ago
I'm curious: what would be a per-unit price you would consider too high? Of course it has high R&D costs -- no one is suggesting otherwise. I'm not even sure what your point is -- that it is monopoly pricing, but because they have a competitive advantage and because they can charge a high price for it?
- sdinsn 6y ago
  > what would be a per-unit price you would consider too high? If the price is too high, then no one will purchase it. Therefore, Gilead makes no money. Obviously, Gilead wants to make money. So they will decrease the price to attract customers, ultimately finding a ideal price that maximizes the balance between profit margin and customer volume. There is no such thing as 'too high' of a price, as long as you make the safe assumption that companies are in fact interested in making money.
  - ajsharp 6y ago
    > If the price is too high, then no one will purchase it. Therefore, Gilead makes no money. This is great in theory but is entirely inapplicable and utter non-sense in practice in a health care context, and in this instance in particular. My original commend made mention of inelasticity of demand. When people's lives are at risk, there is no demand curve and equilibrium. The price is what the supplier says it is. It has nothing to do with what the market will bear, or whatever other macro 101 theoretical framework you're applying to this reality. It's different in almost every possible way than say, going to the grocery store and deciding if a box of cookies is too expensive for the value you're deriving, and whether this alternative or that alternative is a better value. Maybe you don't know much about how billing and payments in the health care system works, or the exorbitant costs for things that happen in a hospital setting that are completely untethered to what anyone would be willing to pay in a normal market. > Obviously, Gilead wants to make money. So they will decrease the price to attract customers, ultimately finding a ideal price that maximizes the balance between profit margin and customer volume. Again, this isn't a b-school case study. Your mental model doesn't apply here.