Comment by AnthonyMouse

Comment by AnthonyMouse 2 months ago

> You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare.

It's not supposed to be competitive, that's the entire point of a patent. They're supposed to be able to extract nearly the full value of the drug during the patent term, because that's the value of the drug existing, so that's how much incentive you want there to be to create it. After that the patent expires and it becomes a cheap generic, which is what the public gets out of the deal.

yunwal 2 months ago

The point is that there’s nothing magical about price discovery under an anti-competitive system. It doesn’t maximize welfare, so there’s no reason to complain about another system that doesn’t allow for price discovery. That’s not a bad thing.

It’s far far more efficient to have an expert guess the price that maximizes public welfare. They won’t get it 100% correct, but they’ll do better than monopoly pricing

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AnthonyMouse 2 months ago

> The point is that there’s nothing magical about price discovery under an anti-competitive system.
There is though, because it gives you the price that it's worth to the buyers, which is the amount of benefit the buyers derive from it existing, which is the amount of incentive we want to provide to create it.
For something that wouldn't otherwise exist, the monopoly price for a temporary period of time is a close approximation to what would maximize welfare -- it's proportional to the value of having it exist without being the whole thing, because it becomes a competitive commodity when the patent expires.

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- yunwal 2 months ago
  
  > There is though, because it gives you the price that it's worth to the buyers
  It does not. It gives you what it’s worth to the last buyer, sure. All of the buyers before that value it higher than that price, and all of the people that don’t buy it value it lower than that price. In the end, all you’ve really found is the price the company expects will maximize profit.
  This may tell you a little bit about what the company believes the demand function is, but it doesn’t confirm or deny their correctness.
  
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