Dying because you can't afford a device you need is also not something to take lightly. It may not be a good idea, but blame should lie with the manufacturer for raising the price to such ridiculous levels.
The price hikes would immediately attract lower-cost competitors if this were truly a free market.
Any participants in a free market for a product with inelastic demand (e.g. something you need to stay alive) and non-trivial entry costs immediately implements price fixing in the absence of regulation.
When life-saving devices that require a significant supply chain to manufacture capture the bulk of consumer surplus from the majority of potential customers (and the poorest are left to die), the free market is working as intended, efficiently allocating resources to maximize profits.
You can view the high price as the free-market finding the intersection of supply and demand given the regulatory and legal constraints but that seems like a less than useful way of understanding 'free-market'.
I think that misplaces the cause. The requirement for safety and the high cost of failure is what creates those regulations and liabilities.
Theoretically, we could eliminate the regulations and liabilities and just let people die, but 1) that's a really bad idea, and 2) it would be excluding from the market mechanism (i.e., externalizing) the most important aspect of the product, its safety.
Stop using regulation as a stalking horse for your argument. Everything you need to know about the price of epi pens you can derive from inelastic demand (people don't want to die), and barriers to entry (copyrighted brand, network of doctors writing prescriptions, and yes, FDA approval so these things don't kill people).
The price is high because people will pay almost anything to not die. This drives the price point up to capture consumer surplus. It's easy to understand.
The Free Market isn't a magic bullet that will drive down these prices. For one simple reason. Rational actors don't compete on price. I'm going to repeat this, because so many people don't get it.
Rational actors don't compete on price. Rational actors will spend up to their expected monopoly profits to create a Nash Equilibrium where new entrants into a market will be unprofitable. The simplest way to do this is through dumping. (see "competition" in the generic drug market for example) Why doesn't this happen in every market? Regulation.
Maybe you don't like that in unregulated markets, people starve, are poisoned, are denied treatment, and worked like slaves. Because that's how you maximize profit, by minimizing your own costs by maximizing externalized costs. So you'll think anything to avoid that realization. Like blame 'regulation' for what's obviously rationally maximizing profits.
And if you want to know how exactly the 'free-market' for medical supplies would work without regulation, just look at the 1800s. Demand was still inelastic, so prices were high, quality was low (for obvious reasons), and competition was still stupid, because price fixing and dumping were still more profitable than competing on price.
Do you have a source for this? Medical costs started angling up steeply in the 1960s with the advent of heavy regulation.
> dumping were still more profitable than competing on price.
Isn't dumping competing on price?
Broadly, to a first approximation: Medical costs, real-estate, and education have increased in price to capture the consumer surplus created by the decline in food. clothing, and fuel costs.
> Isn't dumping competing on price?
Nope, dumping is used to drive new entrants out of a market. It also acts as a signal to prevent new market entrants.
If I sell 2 million widgets per year at a price of $10 over a cost of $1, after $4 million in capital costs, I can maintain a monopoly if I'm willing to drop my sale price to 50 cents every time someone enters my market, and I raise the price when they exit it.
This creates a Nash Equilibrium were no rational actor will spend $4 million to build a factory to compete with me.
It is quite a remarkable coincidence that medical costs angled steeply upward immediately after heavy regulation and government involvement in it began.
> I can maintain a monopoly
It'll be pretty hard to swallow $1 million/year in losses to do so. You'd have to maintain those losses to beat back even a small competitor, who would have proportionally smaller losses. A small competitor would have the capability to ruin your business with a small investment on their part. I bet they could finance it by shorting your stock.
Regulation didn't give people more money to spend on medicine. Offshoring jobs to China drive down prices of consumer goods to make more money available as a consumer surplus that could be captured by healthcare.
If the price of food increased, the price of housing, education, and medical care would decrease. Because the demand curve would change.
> A small competitor would have the capability to ruin your business with a small investment on their part. I bet they could finance it by shorting your stock.
That's a nice hypothetical that completely ignores all of financial theory AND history. If you ever start a company, let me know so I can short YOUR stock.
Why wouldn't it be captured by farmers? or carmakers?
> all of financial theory AND history
Can you give case history of a company that maintained a monopoly via periodic dumping to bankrupt any competitors? I'm not aware of one, and no, Standard Oil is not one (see the book "Titan" about it). I've read many econ/history books, and none them put forward your dumping theory. Do you have a book reading list?
The other one is the enactment of Medicare/Medicaid in 1966/1965. From the graphs I've seen, that corresponded with the knee in the curve.
Blaming high prices in this situation on a failure of the market mechanism is simply inaccurate. The high prices are a result of the constraints that prevent competition and the emergence of a free market.
I'm not sure what to say about your assertion that price isn't a component of a competitive market. Certainly competitors try to compete on 'value' of which price is a component among many others (ease of use, features, reputation, availability, etc.).
I don't know what you are defining as 'unregulated markets', but I'm not advocating for the removal of legal frameworks that prevent fraud, negligence, collusion, and so on.
Economic theory doesn't state that monopolies always arise, at least not under the circumstances you are describing. If you can buy your competitors, or make a legally binding contract to compete, the yes, monopolies are inevitable. And as you say, inelastic demand does make monopolies more likely, though your intuition that medical goods have inelastic demand may be wrong, e.g. see the RAND health care study where they randomly assign people insurance types, and find the high deductible group consume less healthcare even in emergency situations.
In the general situation, no theory guarantees that monopolies arise in the absence of regulation (apart from the above to cases which aren't the regulation you're discussing).
>Rational actors will spend up to their expected monopoly profits to create a Nash Equilibrium where new entrants into a market will be unprofitable.
In economics, anything that relies solely on Nash Equilibrium is doubtful. In most situations, Nash Equilbria are not unique, and therefore it's hard to say what will actually happen. If the Nash Equilibrium is unique, usually some stronger equilibrium concept applies like dominant strategy equilibrium.
In your case it would be more accurate to say that committing to drive out potential competitors can be a Nash Equilibrium for some parameters.
Maybe $600 is an amount that everyone can get with some sacrifice but there are other drugs/devices/procedures that cost $10,000s or more where people just have to go without because they're not allowed to take a chance on an unregulated alternative.
The only sectors of the economy where significant, lasting shortages occur are the ones most heavily regulated.
That's not what economic theory (and practice) say, I'm pretty sure. For example, unregulated electrical, communication (including Internet service) and transportation markets have resulted in shortages in rural areas. Unregulated food and housing markets (and many other markets, including Internet service) result in shortages for poor people. Unregulated fishing creates shortages of fish - a 'tragedy of the commons'. Monopolies and oligopolies eliminate whole categories of products.
The free market is very good for some purposes, but it's not a benevolent God that finds solutions to all our problems. It's just a very useful tool in the toolkit.
>unregulated electrical, communication (including Internet service) and transportation markets have resulted in shortages in rural areas
Again, according to my above definition this is a slightly different topic, but it seems highly dubious that a lack of regulation is what has resulted in shortages of internet service is some podunk town.
>Unregulated food and housing markets (and many other markets, including Internet service) result in shortages for poor people
The most significant factor limiting the availability of low cost housing is municipal regulation, not the absence of it. I'm not aware of any place in a developed nation which has a shortage of food. It seems what you are getting at is the options may not be affordable for some, but that is a different concept from a shortage. Furthermore, it is a bit of a stretch to refer to the food and housing markets as "unregulated". If there are any shortages in these markets it's certainly not due to a lack of regulation.
>Unregulated fishing creates shortages of fish - a 'tragedy of the commons'
I have commented on the idea of "tragedy of the commons" many times. It generally leads to quite a tangent in the conversation, but if you're truly interested I'd be happy to discuss why the problem does not lie with a lack of regulation.
>Monopolies and oligopolies eliminate whole categories of products.
A true, lasting monopoly is only possible through market regulation which strangles out competition. All the textbook examples of "monopolies" (Standard Oil) were not monopolies at all. In fact in the early days of electricity there was so much competition in the big cities that the big guys lobbied hard to get their monopoly privilege.
Of course, I'm not providing any citations myself!
So you're saying that Petroleum Exporting Countries would never say... create an Organization intended to increase the price of oil?
Or the DeBeers wouldn't collude with diamond producers to limit the availability of diamonds to increase the price?
Or that manufacturers and distributors of light bulbs, lysine, copper, cleaning powder, vitamins, glass, milk and machinery would never, ever engage in price fixing?
I want to live on your planet, where capitalism is so nice and perfect that companies rush to give away all their profit by competing the marginal cost down to zero without any of those pesky regulations.
That's like saying that price competition is alive and well because banks will give you a free toaster when they charge fees to loan your money back to you.
But to address the specifics of the software industry, software is a complementary good.
This has been the driving force in the price of software for decades: http://www.joelonsoftware.com/articles/StrategyLetterV.html
And it's true today. The biggest contributor to Linux is... Intel. Because it sells hardware. Google gives you a free browser so it can sell ad space.
The price is still $0 and there are still no regulations on it.
Most (all?) commercial products have complementary products. This is hardly unique to software. I seriously doubt the theory that medical products have no complementary sales.
How does that help your case? The members of that organization are governments, not companies. OPEC is regulation.
They don't like it, but healthcare costs money and money is a limited resource. That's reality.
In the US system it's the insurance companies that limit access (or the cost to an individual). In other countries it's the gov't.
We also see drug shortages because the lone manufacturer temporarily or permanently stops manufacturing. For example, there's an ongoing injectable estrogen shortage because the manufacturer has an issue sourcing a key ingredient [0] [1]. (Thankfully, other forms and dosages are not impacted.)
[0]: https://www.theguardian.com/commentisfree/2016/aug/13/estrog...
[1]: http://www.out.com/out-exclusives/2016/8/04/exclusive-theres...
There really isn't any good answer to this, and there will be losers in either scenario.
Also, the individual price per unit would rise to the point that there would be another competitor to the market.
My point is that you can't cry about government controlled health care, and high prices of "free-market" items at the same time.
So either we have a gene pool cleansing and accept that people die, or a controlling entity uses force to coerce the manufacturers to adopt practices that will make it available at "reasonable" prices to the populous.
[1] Blame is justifiably attributed to the government whether you believe the fix is a freer market (to reduce the costs associated with bringing suitable competitors to market) or you believe regulation should prevent this from happening. Apart from the requirements codified into law, we should have no expectation of altruism by companies, especially when their existence is intrinsically related to profit-seeking motives.
(1) seems like a total cop-out to me. By that logic, you can blame everything on the government. Some guy murders his family in a fit of rage? Government should have done a better job preventing it.
Also, part of the point of this kind of outrage is to punish these companies for their behavior so that the evil choice is not the most profitable one.
I didn't say corporations are legally required to seek profits, but they do have profit-seeking obligations in most cases. Without investors' expectations of future profits, those companies wouldn't exist in the first place.
And last I checked, murder is illegal, so no, I can't expect the government to do anything beyond that (as long as that law is enforced).
I can hope my neighbor is a decent human being and that he'll be a good neighbor when people around him are in need, but I personally won't blame him if he doesn't. Similarly, if he's being a nuisance - without breaking any laws - I still can't really expect him to stop (just because I value my peace more than he does) unless I do something to change the law. I can whine about it all day long and tell him it's "not OK", but if I don't do something to change the law (or move), then the only person I can really blame is myself. Blame is only useful so far as it actually has any "teeth" to improve the situation.
It comes down to this: we all want the world to be a better place. We can hope and expect everyone else to live up to our ideals (and complain when they don't), or just do our best to live that ideal ourselves. Anything serious enough to warrant restrictions or mandates on the behavior of others is probably within the realm of legislation.
If your neighbor is being a nuisance, it may be more effective to gather up some of the other neighbors and all go over to the fellow and tell him to knock it off.
I don't have any actual solutions to propose here. Maybe it merits legislation, maybe it merits consumer action, maybe it's just an opportunity for some other business to create a competing product. I just don't like criticism of people trying to work around a life threatening problem without also acknowledging the source of the problem, and I especially don't like justifying bad corporate behavior on the mistaken principle that corporations must prioritize profits above all else.
I do agree about upset customers having teeth. That's exactly how a free market operates. If they're upset enough, they'll stop buying the product and look for alternatives. Except there aren't any suitable alternatives to EpiPen on the market, and it's a potentially life-saving product, so those teeth don't have anything to bite in this case. I'm sure many, many other companies would love to seize that opportunity. So what's stopping them from competing? Answer: unnecessarily complex government regulation.
Or, if that approach doesn't resonate with your worldview, then go out and put pressure on the government to regulate the prices of things like EpiPen.
Either way, the answer lies in the government, not the corporation. The company hasn't broken any laws. We can wish they'd lower prices, but we might as well wish for pink unicorns. The answer for your neighbor is the same - you can't expect him to be reasonable just because you gave him a stern word.
Or, redirect those efforts into fixing the issue through legislation (either to open up the market to more competition, or to restrict price gouging). That's a battle you only have to win once, so in my opinion, it's a far more effective use of one's time.
But if you prefer to cry out that life isn't fair every time people do things that aren't illegal, that's entirely acceptable. I'm glad to see we still have the liberty to speak our minds, regardless of ideology.
The only way to get any legislative action on this is to get the electorate to care about it so that legislators get convinced that they need to act on this in order to keep their constituency returning to the polls and checking off their name.
And in order to do that, you need to talk about how problematic and reprehensible these moves are, so people actually care about it.
So really, both the social shaming and legislative approaches start out the same way. Unless you think you're talking to a dictator, your "stop whining and pass some laws" approach is nonsensical.
> And in order to do that, you need to talk about how problematic and reprehensible these moves are, so people actually care about it.
It sounds like we're in agreement there. The only difference is, you've expressed an unrealistic expectation with regard to the effectiveness of social pressure directly aimed at the company involved. If history is any guide, we can only expect systemic improvement in this scenario through legislation and/or deregulation. Otherwise, you're merely treating symptoms of the problem, not the cause (and no, the cause isn't capitalism or profit-seeking companies as many may have you believe).
Now, if trying to fix problems in our country through the use of a system of rules and regulations (aka, laws) that has been established for that very purpose is nonsensical, then so be it. I suppose that view is indeed nonsensical in the context of today's prevailing social attitudes.
Shareholders make investment decisions based on their own opinions of which companies are most likely to generate the highest return over their preferred time span. That is not the same thing as believing in an obligation.
Sure, we mostly stopped doing this for various stupid reasons, but legally it's sill an option.
Legal and profitable mob run businesses are taken over vs shut down then resold once the books are clean. During World War II, Washington seized dozens of companies including railroads, coal mines and, briefly, the Montgomery Ward department store chain. http://www.nytimes.com/2008/10/13/business/worldbusiness/13i... Banks are probably the most common but it can also happen in bankruptcy.
Generally ownership is short lived though.
- Seizing companies literally run by criminal organizations.
- A single time during war when companies were nationalized, and which was then ruled "an unconstitutional abuse of presidential power".
- A bailout of the shareholders and creditors of failed companies.
The only relevant one seems to be the second, and the outcome in the courts doesn't sound promising.
Also of note, their are thousands of examples in history, this is just referencing a few hundred to make a point.
PS: It's also worth noting that the mob example was taking control not just ownership. These companies where money laundering for example so they needed to remove people from the payroll who did not work there.