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Related: About this forumMarkets Work: Martin Shkreli, Daraprim And Turing Pharma Edition
Economics & Finance 10/23/2015 @ 2:35AM
Markets Work: Martin Shkreli, Daraprim And Turing Pharma Edition
We have an interesting and important economic lesson for public policy here: markets, they work. More accurately, we dont have to worry about someone attempting to exploit their possession of a contestable monopoly. We only have to worry, possibly take action, if someone has an uncontestable monopoly. And given that theres very few of them that we dont create ourselves for other reasons, this means that monopoly is just one of those things we can keep a wary eye upon but not worry over excessively.
Our example comes from Martin Shkreli. The basic background is that this entrepreneur thinks hes found a pretty cool business model. Theres a number of pharmaceuticals out there that are well out of patent but still have small and useful markets. FDA regulations (no, well not go into the details of how or why this happens) mean that its not as easy as one might think to produce generic versions of these out of patent drugs. So, as a business plan, buy up the rights to the permit-ed (as in, with a permit, not just those allowed, as in permitted) generics and as a result of the difficulty someone else will have in getting into the same market, some pricing power is available. You can then raise the price and start to bank your considerable profits.
This caused outrage when Shkreli announced that this was exactly what he was doing:
A 5,000% price rise certainly indicates that Turing thinks it has pricing power and thus that it has considerable monopoly power.
However, pricing power, and thus monopoly power (run these either way around at your leisure) depends upon one important point. Whether there are any close substitutes: or, alternatively, whether there are substitute suppliers? These are different manifestations of the same thing, how difficult (or easy) is it going to be for people to get the same thing from someone else, or something else that pretty much gets the job done?
Markets Work: Martin Shkreli, Daraprim And Turing Pharma Edition
We have an interesting and important economic lesson for public policy here: markets, they work. More accurately, we dont have to worry about someone attempting to exploit their possession of a contestable monopoly. We only have to worry, possibly take action, if someone has an uncontestable monopoly. And given that theres very few of them that we dont create ourselves for other reasons, this means that monopoly is just one of those things we can keep a wary eye upon but not worry over excessively.
Our example comes from Martin Shkreli. The basic background is that this entrepreneur thinks hes found a pretty cool business model. Theres a number of pharmaceuticals out there that are well out of patent but still have small and useful markets. FDA regulations (no, well not go into the details of how or why this happens) mean that its not as easy as one might think to produce generic versions of these out of patent drugs. So, as a business plan, buy up the rights to the permit-ed (as in, with a permit, not just those allowed, as in permitted) generics and as a result of the difficulty someone else will have in getting into the same market, some pricing power is available. You can then raise the price and start to bank your considerable profits.
This caused outrage when Shkreli announced that this was exactly what he was doing:
Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750
A 5,000% price rise certainly indicates that Turing thinks it has pricing power and thus that it has considerable monopoly power.
However, pricing power, and thus monopoly power (run these either way around at your leisure) depends upon one important point. Whether there are any close substitutes: or, alternatively, whether there are substitute suppliers? These are different manifestations of the same thing, how difficult (or easy) is it going to be for people to get the same thing from someone else, or something else that pretty much gets the job done?
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Markets Work: Martin Shkreli, Daraprim And Turing Pharma Edition (Original Post)
mahatmakanejeeves
Oct 2015
OP
Warren Stupidity
(48,181 posts)1. No they don't, not for public goods and life critical
necessities. The shennanigans over this specific drug illustrates just one aspect of the problem. Had Asshole kept his gouging under the radar he would have gotten away with it. Meanwhile trade deals in progress are going to extend monopoly patent protections for big pharma allowing them to enforce brutal gouging through our governments, and other sole source drugs are actively being cornered by Asshole and Associates. The whole concept is wrong.