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Capital markets don't perfectly account for all positive and negative externalities in the world, not even close. For example think of a company that invents a
by rurp 2y ago
Capital markets don't perfectly account for all positive and negative externalities in the world, not even close. For example think of a company that invents a miracle drug that only costs $1 to produce. The net benefit to humanity would be to open up production and sell it to everyone who needs it for a few bucks, but of course the company will do everything it can to maintain a monopoly and sell the drug for $X0000/dose, even if relatively few people can obtain it. Lawyers and lobbyists will get paid a lot of money to get the second outcome, even though they're producing negative value overall.
- s1artibartfast 2y agoIm not saying they do. I am saying that claims of inefficiency or failure need to be compared to a possible and realistic counterfactual. You might think it is is inefficient to have a miracle cure for cancer tied up on patent for 20 years, but what are you comparing it to.
- jackcosgrove 2y ago> sell the drug for $X0000/dose, even if relatively few people can obtain it A rational company would lower the price if that broadened the market and netted more profit by volume. Drugs aren't Veblen goods. The impetus for jacking up drug prices is that the market is captive, and those who need the drug will obtain it. That and insurance/government is often the payor.
- edmundsauto 2y agoRight, but in some cases volume doesn’t make up for the price drop. Or the source materials are the bottleneck. Even if the societal benefit was greater.
- simiones 2y agoIf the drug is needed by 1 million people, selling it for $1 will net you $1 million (let's assume all the 1 million can afford $1). If they instead sell it for $1000 and only 2000 people who need it can afford it, they'll make $2 million, so it's much more economically efficient.
- consteval 2y agoNo, because once those people take the drug then cash flow disappears, because they're cured. It's ideal to stretch out the adoption of the drug as much as possible in that situation. It's the same reason SAAS took off so much. If you sell the product and consumers are (relatively) happy, now what? They might come back and buy another version in 5-10 years, but how do you generate enough cash flow between now and then to stay afloat?
- s1artibartfast 2y agoThats not very true for drugs, especially a theoretical cure all. The time value of money means you want to sell every dose as soon as possible. with a 10% annual return, $1,000 today is better than $2,600 in 10 years. Additionally, each day that passes, someone else can come in and outperform you or undercut your price.