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Although you're right, it's a little misleading. The point is that governments won't pay any price, they usually negotiate a (good) price given their buying po

Although you're right, it's a little misleading. The point is that governments won't pay any price, they usually negotiate a (good) price given their buying power. As you say they may not buy it, but countries that dictate a price (generally) cannot force a company to supply it. Ultimately it comes down to market forces, even if the market looks very strange, with essentially one buyer and one seller.

s1artibartfast 2y ago
not sure what you find misleading?
AnthonyMouse 2y ago
> Ultimately it comes down to market forces, even if the market looks very strange, with essentially one buyer and one seller. That isn't really a market. Suppose you have a government that requires everyone to pay for public health insurance, effectively eliminating the market for private insurance because hardly anybody buys private insurance when they both already have public insurance and have paid the money they'd have used to buy it in taxes. Then the government insurance declares the maximum price they'll pay. Is there any meaningful way to distinguish this from price controls? The vast majority of customers can't afford the drug without insurance and the government is the insurance company and is setting the price through regulation. In particular, notice that this has all of the problems of price controls. There is no real market to enable price discovery, no effective way for customers to switch insurers and thereby punish insurers who pay too much and have high premiums or pay too little and have poor coverage, it's just regulators making up a number and saying take it or leave it. And even at that, you shouldn't have a problem for generic drugs because then the insurance can just put it out for bids and still have price discovery (i.e. a lowest bidder). But here we're talking about brand new drugs that are still under patent, which have one supplier because they're supposed to be expensive because that's the incentive for the drug companies to fund the R&D and cause them to exist to begin with.
- yunwal 2y ago
  > There is no real market to enable price discovery Note also that this is a feature, not a bug. You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare.
  - AnthonyMouse 2y ago
    > You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare. It's not supposed to be competitive, that's the entire point of a patent. They're supposed to be able to extract nearly the full value of the drug during the patent term, because that's the value of the drug existing, so that's how much incentive you want there to be to create it. After that the patent expires and it becomes a cheap generic, which is what the public gets out of the deal.
    - yunwal 2y ago
      The point is that there’s nothing magical about price discovery under an anti-competitive system. It doesn’t maximize welfare, so there’s no reason to complain about another system that doesn’t allow for price discovery. That’s not a bad thing. It’s far far more efficient to have an expert guess the price that maximizes public welfare. They won’t get it 100% correct, but they’ll do better than monopoly pricing
      - AnthonyMouse 2y ago
        > The point is that there’s nothing magical about price discovery under an anti-competitive system. There is though, because it gives you the price that it's worth to the buyers, which is the amount of benefit the buyers derive from it existing, which is the amount of incentive we want to provide to create it. For something that wouldn't otherwise exist, the monopoly price for a temporary period of time is a close approximation to what would maximize welfare -- it's proportional to the value of having it exist without being the whole thing, because it becomes a competitive commodity when the patent expires.

s1artibartfast 2y ago

not sure what you find misleading?

AnthonyMouse 2y ago

> Ultimately it comes down to market forces, even if the market looks very strange, with essentially one buyer and one seller. That isn't really a market. Suppose you have a government that requires everyone to pay for public health insurance, effectively eliminating the market for private insurance because hardly anybody buys private insurance when they both already have public insurance and have paid the money they'd have used to buy it in taxes. Then the government insurance declares the maximum price they'll pay. Is there any meaningful way to distinguish this from price controls? The vast majority of customers can't afford the drug without insurance and the government is the insurance company and is setting the price through regulation. In particular, notice that this has all of the problems of price controls. There is no real market to enable price discovery, no effective way for customers to switch insurers and thereby punish insurers who pay too much and have high premiums or pay too little and have poor coverage, it's just regulators making up a number and saying take it or leave it. And even at that, you shouldn't have a problem for generic drugs because then the insurance can just put it out for bids and still have price discovery (i.e. a lowest bidder). But here we're talking about brand new drugs that are still under patent, which have one supplier because they're supposed to be expensive because that's the incentive for the drug companies to fund the R&D and cause them to exist to begin with.

yunwal 2y ago
> There is no real market to enable price discovery Note also that this is a feature, not a bug. You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare.
- AnthonyMouse 2y ago
  > You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare. It's not supposed to be competitive, that's the entire point of a patent. They're supposed to be able to extract nearly the full value of the drug during the patent term, because that's the value of the drug existing, so that's how much incentive you want there to be to create it. After that the patent expires and it becomes a cheap generic, which is what the public gets out of the deal.
  - yunwal 2y ago
    The point is that there’s nothing magical about price discovery under an anti-competitive system. It doesn’t maximize welfare, so there’s no reason to complain about another system that doesn’t allow for price discovery. That’s not a bad thing. It’s far far more efficient to have an expert guess the price that maximizes public welfare. They won’t get it 100% correct, but they’ll do better than monopoly pricing
    - AnthonyMouse 2y ago
      > The point is that there’s nothing magical about price discovery under an anti-competitive system. There is though, because it gives you the price that it's worth to the buyers, which is the amount of benefit the buyers derive from it existing, which is the amount of incentive we want to provide to create it. For something that wouldn't otherwise exist, the monopoly price for a temporary period of time is a close approximation to what would maximize welfare -- it's proportional to the value of having it exist without being the whole thing, because it becomes a competitive commodity when the patent expires.