Cartels are an emergent phenomenon[1] and it is in the interest of a fair market to not be "free market," whenever it leads to rackets.
There are plenty of good reasons there are only ever ~6 pharma companies and most have been around for 150yrs. There are few markets where oligopolies have maintained power for as long and as consistently as pharma. A few reasons why:
- Plenty of capital to support M&A
- Legendary regulatory hurdles for new entrants
- An obedient judicial system where the annual major legal cases for illegal marketing by big pharma cos result in a slap on the wrist
[1] https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical...
Problem: You set up shop, you make up a big batch of generic insulin and then...you don't sell any, because doctors aren't prescribing it. Why would they? Most probably haven't heard of it, and the ones who have will also know (correctly) that the patented improvements may be minor improvements, but they are improvements. All you've got to compete on is cost, but the doctors aren't paying the cost. Nor are the majority of their customers; they have insurance. The minority who are paying the cost directly would probably prefer a cheaper option, but that would require them to hear of it, and it's not clear there's enough of them to cover your overheads even if they did hear of it, and your generic drug margins don't cover the cost of the massive marketing campaign you'd need; you're not selling Viagra here.
Your success will rely on getting the big insurers to stop covering the better forms of insulin, or at least stop covering it in the general case. Which they absolutely should do! And the second one of them tries the "insulin cartel" will do a little lobbying, and some patient groups will express outrage, and a congressman will start talking about hearings, and the NYT will run an nominally balanced news piece about insurance company greed forcing diabetics onto archaic, inferior forms of insulin, and the insurance company will give up, because hell, they just pass the costs on in the form of premiums; it's no skin off their nose.
And you'll go under. And the worst part is, there's no big conspiracy or villain. The system is just incredibly screwed up.
For insulin, is there even such as thing as "better"? It's not treating a disease with some probability of success that you want to maximize. It either works or it doesn't. At least that's my limited understanding.
As the article says, if the patents didn't exist, we could have a generic brands.
But there is no conceivable way to enforce things like copyright or patents without something at least as powerful as a government, since they are supposed to be binding on every single person, everywhere, all the time.
IMO the concept of "intellectual property" is at best orthogonal to that of a "free market".
In a more moderate situation land and property are organized and enforced by the state, because this protection is more efficient for everyone.
Intellectual property is incredibly hard to enforce, because anyone can copy an idea, or bits on a hard drive, so you'll have to come up with convoluted solutions to check for the presence of information at every point in a network, and we're expecting citizen to pay taxes to pay the police force who will enforce those rights in favour of the owners.
There are other, more efficient means, but they involve the richest to get a smaller cut (e.g. instead of the state enforcing DRMs for free, they have to pay for good DRM themselves), so it's very valuable for them to leverage the state to enforce their self-proclaimed rights.
The market for drug companies is global. If you were talking about doctors or some type of medical provider that was limited to providing goods and services within a single jurisdiction, you might have a point.
If there is no monopsony power, it's hard to make any claim of abuse on the part of the government. Single payer governments are leveraging their bargaining power like any rational market participant. Drug companies are not required to sell to them. They do so of their own volition at a price favorable to their bottom line, otherwise they wouldn't do it.
"They do so of their own volition". No. You are expressing the Panglossian viewpoint that just because something happened it was the best choice.
We know from experimental economics that people make decisions different than rational market theory would predict. The heads of large pharmaceutical companies are not exempt from this irrationality.
Nor are all people in government short-sighted pennypinchers. The price negotiations also include the reality that some of the profits are turned into more research for future drugs. Hence the questions of what "efficient" and "abuse" means, which go into the pricing negotiations.
https://en.wikipedia.org/wiki/Monopsony#Welfare_implications explains it pretty clearly for the example of labor.
Or if you want to use the model, the deadweight loss in your evaluation can instead be interpreted as the price that people are willing to pay for the good feelings of knowing that everyone in the country has accessible and affordable basic health care.
Sure, but in the case of drug prices in countries with national health systems we don't really have any reason to think that the model doesn't reflect reality.
> the deadweight loss in your evaluation can instead be interpreted
Yes, this is exactly my point! The science of economics makes no judgement about the relative moral values at play here. That may very well be a tradeoff people want to make. Or it might not. Economics doesn't comment on that question one way or another, it nearly provides data on the practical outcome of the decision.
Companies unlike people should be allowed to die. That's one of the ways market evolves. One of the way market avoids local optima. Companies dying because they cannot provide the market at the prices market expects is the normal thing.
People dying because cartel prices essential good above what consumers can afford is not.
Generally speaking, the US government demands most favored pricing and gets it. No way we would pay more than France.
Europe does better because they have the ability to prevent sale of a drug and the drug company can just raise the price in the US. If the US gets in the game, I would expect European prices to spike, especially in smaller countries.
I though the US government, except for the VA, was "not permitted to negotiate prices of drugs with the drug companies" due to Medicare Part D. (Quoting https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms .) Was that prohibition removed?
If it's still there, then wouldn't that prevent the US government from demanding most favored pricing, as that would be a negotiation.
My guess is they do not because hey would put companies out of business and impact many countries.
Or, rather, I can vote out the people who delegated the appointment of top-level bureaucrats to their senior staff, who suggested industry insiders intent on regulatory capture?
I can vote out those people after the fact? Gee, that'll fix it.
If you're concerned with insulin prices, tear down the bureaucracy that prevents some Indian manufacturer from undercutting the pricing regime with product that costs 3 cents on the dollar.