Free market is indeed somewhat fictional, as it is far from free in practice. The stock market in particular may look unhinged, but it is heavily regulated, that's the reason why it works, and the reason it looks like the ideal of a free market is, ironically, because of regulations.
As for diamonds, these are luxury goods, being expensive is the whole point, so what if they are overpriced? If de Beers didn't have a history of things like using slave labor, I wouldn't have a problem with it. Would I have hated it, if my $10k diamond turned out $500, yes, no one likes losing money from a bad investment, but prices have to go down at some point. It also shows that competition can work, de Beers didn't go down because of regulation, it went down because it was beaten by technology and bad publicity.
The problem with Shkreli and the Epipen was because healthcare is not a normal market and completely unlike diamonds. Normally, one would expect the government to make sure that life-saving drugs stay affordable, and it is the case in many countries, the US being a notable exception. Instead, in the US, the government promotes this kind of behavior though a combination of its mostly private health insurance system, tight control on who gets to make and sell drugs, but no control on the price. EU countries (most of the developed world in fact) are much more sane in that regard. Dynamic pricing is allowed as a general rule, luxury goods are still overpriced, but essentials like health and housing are regulated to prevent pathological cases like the Epipen thing.