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Comment by arcticbull | Hacker News Reader

I thought this was capitalism? Isn't the idea of a company under a capitalist system to generate the maximum amount of profit possible for each product they sell?

Drugs aren't priced relative to what they cost to make or develop any more than airlines price flights based on how much it costs to fly someone between any given city. They're priced at the highest level the market will bear. Is it any surprise that the largest, most powerful economy in the world will bear higher prices? The drugs by definition have higher value because treating someone in a strong economy delivers more marginal value than in other markets. That's math.

Now we can talk about different systems but this is the one being held up today.

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I' am sure pharma board meeting go like this

CFO: ABC pharma just got FDA approval to sell a generic version of Viagra, our revenue is projected to take a $1.5 billion hit.

CEO: Fuck. Start raising the price of insulin, I gotta hit these wall street estimates.

Indeed charging the max possible is the idea. The idea is also that the market is free so a competitor could also extract profit by making the same drug for slightly less. Of course another competitor could come in and make it for even less. All these price cutters force the higher priced competitor to lower their price to still produce profit. The lower bound here is the cost of production below which all companies would stop production. So in a capitalist system in a free market profit should always be trending towards zero.

The issue is government allowing companies to be anti competitive. For example, the government is currently entertaining a lawsuit by one insulin company against another company trying to sell insulin for a lower price. While that lawsuit is ongoing Americans must pay the higher price. Thus really government willing to enforce continued monopoly is one of the problems

Is the market for drugs really free though? I believe that in a free market there is supposed to be no coercion between the parties to a transaction. In the case of drug purchases there may be a kind of coercion involved -- a health issue (diabetes, cancer, etc.) that makes one party to the transaction unable to negotiate effectively.

Indeed, it's extortionate. "Boy, it'd be a shame if you didn't take your insulin and died, wouldn't it. That'll be $700." Thanks, free market!

Like food, right? If people stopped selling you food you would die, so surely they can charge extortionate rates for it.

Of course, there are competitive markets for both food and insulin in the US. Quoting from a letter to the WSJ yesterday,

> Eli Lilly makes three types of insulin, which in most states you can buy over-the-counter at Wal-Mart for $24 per 1000 unit bottle. One hundred syringes cost $12. I have serious diabetes mellitus and have managed it with Lilly insulin for a decade for under $100 a month.

For some drugs there aren't competitive markets, and in some cases the government prevents competition, but both are typically temporary situations (patents, first-mover advantages) that help to get the drug on the market in the first place. An extortionate price for a drug is better than no access at all, and doubly so when it is going to give way to genuine price competition.

The difference is (1) food isn't a specialty good, you can make it yourself and (2) food is provided by the government free of charge if you can't pay and (3) subsidized by the government to a massive degree even if you can pay. If this is the kind of system you're advocating for prescription drugs, I'm all in!

(1) Food producers unilaterally refusing to sell food could be just as disruptive as drug producers refusing to sell drugs. "You can just grow it yourself" isn't a reasonable distinction -- from a practical standpoint most people can't. The reason we don't need to prohibit that behaviour is that the market works.

(2) The government doesn't grow food. Sometimes it pays for it, and sometimes it gives people money so they can pay for it, but there isn't a public option in case farmers decide not to sell us beef, because the market works. (But yeah, the government does -- and should -- help people pay for drugs they can't afford when the prices are reasonable.)

(3) Food production is subsidised, but it shouldn't be. And these subsidies have little bearing on the possibility of extortion in the market.

If you feel like being specific, free markets have to exist without government regulation, without monopolies, without economic privilege, and without artificial scarcity, which doesn't really work in the real world under capitalism. Almost no markets are truly free markets, even the ones that look free, because there are general regulations you still have to follow (you can't legally sell poisonous handmade goods at a craft fair, for example -- laws about that act as a regulation).

Non scarcity is not a requirement for a free market. No artificial scarcity.

Free markets mean that other sellers are free to compete. This is why food, an essential good, is generally cheap. Any seller of food can charge an arbitrarily high price but cannot exclude competing sellers.

In the US, food is generally cheap because significant portions of what we eat are heavily subsidized by the government.[1]

[1] https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...

In a free market no outside agent interferes with buyer and seller. Nature has no will and thus no agency and thus is not an agent. Indeed the free market is key to solving the disparity between what someone has versus what someone needs. It is one of the few systems we know that solves this issue efficiently

If I understand you correctly, then it does seem true to me that nature has no agency. However, when the choice a consumer has is to either pay the asking price for a <em>needed</em> drug or to die then I think the consumer has no meaningful choice at all. Given how unequal the bargaining power is between the buyer and seller in this situation, it's hard to see a free market solutions applies: it might be efficient, but it's also brutaly inhumane.

I know I've set up kind of a straw-man. It might be that the consumer could choose to forgo an expensive drug or medical procedure without fatal consequences, but that's not the interesting case.

The choice shouldnt be between whether they need the drug or not but rather who to buy it from. The fact that there exists someone who needs a product is what drives the profit to zero in a free market because newer manufacturers are incentivized to provide the product. The choice is among from whom to buy not whether to buy at all.

Right now insulin is expensive because the government is preventing companies that can produce it for cheaper from selling in the united states because of a lawsuit by the current market holder. That the government even has this power is a textbook example of the danger of governmental interference in the free market. People are literally dying because the government has made the market less free intentionally

If that's the case, why does a flight from SFO-JFK cost way less than a flight from JFK-LHR in business class? Approximately the same distance, approximately the same cost basis. Dramatically more competition between JFK and LHR. It's not always about competition or cost basis.

Why do you think there is more competition to LHR than domestically? The airport has been maxed out for almost 30 years, it is incedibly hard to get landing slots there. Also the weather over the atlantic makes flights longer and use more fuel.

Because I said profit is driven zero not revenue. JFK to lhr requires all sorts of international permitting that is a fixed and varying cost that domestic routes do not have.

Airlines are a great example of the race to zero profit. Airline margins are slim and thus the cost of travel often reflects exactly the cost of doing the flight itself. JFK to Heathrow requires participation in multiple markets, currency instability, multiple regulators etc which make the cost more excessive. Also london and new York airports are busier than sfo increasing airport fees. Thus in a market with low basically zero margins, the cost from ny to London is more as competitors that cant make the unit economics work leave the market entirely. New competitora cant enter the market at a lower price point because their profit would be zero.

No competitor can produce a drug which is still under patent.

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