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Comment by beloch | Hacker News Reader

It's a common misconception that prices are even remotely related to costs. They're primarily based on what the market will bear. As it turns out, thanks to the american health insurance system, the market will bear truly shocking prices!

For comparison, in Canada's healthcare system drugs are bought in monolithic purchases by the government health board. While you can sell pills at $1000 a pop to patients who face serious illness without them, I can guarantee you that Gilead is not going to be able to sell their pills for $1000 a pop to a government agency. Canadians are going to be paying a lot less for these. Why would Gilead agree to selling their pills at a cut-rate in other nations? The market there won't support it, and being locked out of an entire nation's market is bad for business.

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> It's a common misconception that prices are even remotely related to costs. They're primarily based on what the market will bear.

In a free market with low barriers to entry and low transaction costs, prices are very much related to costs: the price of a thing is the same as the marginal cost of the last unit of a thing produced. This market is also an efficient market.

You may note that the market for treatment of a particular condition has some pretty steep barriers to entry - patents and lots of research and FDA approvals. IT IS NOTHING LIKE AN EFFICIENT FREE MARKET.

In this case, it sounds like they more or less have a monopoly on the treatment, and will charge whatever price maximizes their profit. (This may be multiple prices, if they can do effective price discrimination: charge more to customers able to pay more, less to customers able to pay less.) So yes. "Whatever price the market will bear" indeed.

Postscript. To some extent this is the idea behind a patent on anything: Spend money doing research / design! Receive monopoly pricing power in return! Society gets to use it at will N years later!

"low barriers to entry" is as best as I can tell an arbitrary phrase that means whatever you want it to mean.

For example, a movie industry with the "lowest barrier to entry" would be a legal system where I can take The Hobbit from New Line Cinema, copy it, and sell it to consumers at industrial scale. As far as I can tell, not even the Pirate Party advocates for such a system.

Whenever somebody says "low barriers to entry" inevitably what they mean is "low enough that Big Bad Company is in trouble, but not zero". And while I support the sentiment, and to a significant extent, the policy, I fail to see how arbitrarily adjusting the barriers to entry to a different value because I don't like who is benefiting from it right now is anything other than picking winners and losers, which is a very un-free-market thing to do.

People will pay any price they are capable of to not die. This is what makes many of these situations so morally outrageous.

Do you also understand that those countries get access to these drugs because American taxpayers and health consumers subsidize the cost of the drug?

That is a myth put about by pharmaceutical company interest groups.

http://www.citizen.org/publications/publicationredirect.cfm?...

That report doesn't really dispute his point, though.

The U.S. accounts for about 35% of R&D research worldwide for prescription drugs. Nearly half of the pharmaceutical companies revenues and profits come from the U.S. market. They even get something better than tax subsidies (and they do get quite a few tax breaks)... Medicare's prescription drug program. So, yes, U.S. taxpayers are very much footing the bill, even if the industry doesn't need the outrageous profits they claim.

That link does not debunk the very obvious relationship between rising costs in America and artificially depressed ones overseas (most of those points actually support said argument).

However, neither is the above argument a GOOD one. It SHOULD be damning.

>It's a common misconception that prices are even remotely related to costs.

They're not related to production costs; they're related to the cost of researching drugs in the future. That is, prices determine what pharma companies will be able to do later on.

Not saying I agree with that, but that's how it is.

According to the IFPMA, on average, a sixth of all sales in the U.S. pharmaceutical industry revenue is spent on R&D. To put things in perspective, according to WHO, this is roughly half of what they spend on marketing.

http://www.ifpma.org/fileadmin/content/Publication/2011/2011... http://www.who.int/trade/glossary/story073/en/

But, in the end, still market-bearable costs. Maybe we'd see a reduction of the costs of doing research if there weren't so much tax-payer and insurance money involved today.

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