Quote:
Originally posted by Tyrone_Slothrop
Of course this is true, to some extent. And yet it fails to answer the thing Burger says and I keep pointing to -- that this industry makes its profits before the generics compete. Since they are (almost) perfect substitutes, this shows that other alternatives are not. Consider again the profit margins on viagra, per Burger. You guys are insisting that there is adequate competition in the face of the specific facts of this industry.
|
Let's get this party started again, because I have yet to hear a response to the following:
Are you, Hank and Club, contending that Rx drugs, patented or otherwise, are sold into a sufficiently competitive market that we can assume that allocations are close to pareto optimal? I can't see how that's correct. Let's put aside whether drug companies can charge supra-competitive monopoly prices. Even if they can't, the degree to which drug purchases are subsidized, through insurance or governmnet programs, is massive. Go back to my early example, or look at your last (insured) Rx purchase. Did you pay full price? No. You probably paid 25% or so, perhaps subject to a co-pay, or something. Suffice to say, you did not pay asking price (Bilmore did have to pay the price for his Viagra, but let's put that aside and assume some drug that is typically prescribed for insured ailments). Right there, you have demand that is far higher than would obtain in a competitive market. So drug companies are already benefitting from artificially increased demand. Once you're in that position, you cannot say that some form of Rx drug benefit, for the remainder of the population, will necessarily make society worse off. You're simply not in a competitive market.
Now, let's add to the hypo the existence of a monopoly, or duopoly, or oligopoly. Many branches of economic thinking will tell you that even in a duopoly or oligopoly
without collusion competition is less aggressive. Why? Two reasons. First, companies still face a downward sloping demand curve, such that they have an incentive to price above marginal cost--this is not the world of atomistic sellers who take demand as given. Second, with limited competitors, companies often compete less aggressively. Game theory and econometrics both show this (to be sure, game theory can also show that it can be advantageous to "cheat" on the tacit cartel, but that doesn't always happen). Furthermore, the same studies that show (go to the ftc's website for the generic drug study) that the entry of a generic drops the price of the brand-name drug significantly also show that the entry of a second and third generic reduce the price further. What does that tell us? That a second competitior for a given type of drug does not reduce prices all the way to their competitive level.
So it's great to play Milton Friedman and say "markets are great". They are. But you're assuming a competitive market where it's quite clear none exists. So you have to do more than simply say competition is better than government regulation to make your argument.
