3 ms·

> cause reduced investment in new supply ...which would cause the supply to be reduce, a slide down the demand curve, prices increase, and suddenly the margin

> cause reduced investment in new supply ...which would cause the supply to be reduce, a slide down the demand curve, prices increase, and suddenly the margins aren't so thin, and everything bounces back. The market heals.

majormajor 3y ago
You and the sibling seem to be working with a model where you can just ramp up production by snapping your fingers, and there aren't alternatives to playing in the perfectly competitive market. Why would anyone invest $$$$ to ramp up production of old generic drugs instead of new fancy drugs - especially when "new fancy" is sometimes small tweaks to get a new patent? There's no evidence provided here that the problem is in fact that "these generics are legally prohibited from being sold for a higher price" or that too much of their sales are to government-set/negotiated-rate health-plans. There's nobody quoted here saying "if it cost 1.25x,2x,3x,10x, that would justify investment, but we can't charge more." So if you look at what drug companies charge for patented drugs, "focus on the expensive stuff, and don't dedicate many resources to the generic pipelines" is a perfectly incentive market-based capitalistic decision for industry players to make. Government intervention to boost supply and add redundancies to supply chains looks like a great option.
nradov 3y ago
That is an unrealistic, idealized model which only works when producers can actually react to price signals. Here in the real world, it takes years and a huge capital investment to set up a new drug manufacturing line which operates reliably and has full regulatory approval. And once running, it has to be kept running continuously near full capacity in order to be profitable. Pharmaceutical companies will only make that investment when long term steady demand is pretty much guaranteed. They aren't going to build up excess backup capacity unless someone specifically pays them to do so.

majormajor 3y ago

You and the sibling seem to be working with a model where you can just ramp up production by snapping your fingers, and there aren't alternatives to playing in the perfectly competitive market. Why would anyone invest $$$$ to ramp up production of old generic drugs instead of new fancy drugs - especially when "new fancy" is sometimes small tweaks to get a new patent? There's no evidence provided here that the problem is in fact that "these generics are legally prohibited from being sold for a higher price" or that too much of their sales are to government-set/negotiated-rate health-plans. There's nobody quoted here saying "if it cost 1.25x,2x,3x,10x, that would justify investment, but we can't charge more." So if you look at what drug companies charge for patented drugs, "focus on the expensive stuff, and don't dedicate many resources to the generic pipelines" is a perfectly incentive market-based capitalistic decision for industry players to make. Government intervention to boost supply and add redundancies to supply chains looks like a great option.

nradov 3y ago

That is an unrealistic, idealized model which only works when producers can actually react to price signals. Here in the real world, it takes years and a huge capital investment to set up a new drug manufacturing line which operates reliably and has full regulatory approval. And once running, it has to be kept running continuously near full capacity in order to be profitable. Pharmaceutical companies will only make that investment when long term steady demand is pretty much guaranteed. They aren't going to build up excess backup capacity unless someone specifically pays them to do so.