But of course most Western countries resolve this kind of conundrum in healthcare with collective bargaining, whether that's at the government level or at the insurance level (which only really works if you ensure absolutely everyone has insurance). If the offer is "we will buy 1000 doses/year for no more than $15 each" the dynamic changes a lot.
The dynamic changes a lot because the drug does not exist. It costs $750M to research and develop so nobody bothers unless it's a common enough disease that it can be paid for with what people feel is a "moral price." It seems people only care about marginal cost of production in their moral calculus.
Let's say the drug costs $750M to develop, $1/dose to produce, sales are free and no other fixed costs exist. Let's also pretend that you can sell during the full patent period of 20 years, but expect to be out-competed by generics after that. Also you need one dose per day.
750 million divided by 20 years and 365 days per year is 106000 (rounded up).
The company could sell the medication for
1) $107 per dose, 1000 people can afford it and the company makes $0 profit.
2) $1000 per dose, 900 people can afford it, the company makes $880 profit per dose, for a total of $792,000/day
3) $10000 per dose, 100 people can afford it, the company makes $9882 profit per dose, for a total of $988,200
The research raises the lowest viable cost, and becomes more expensive per dose as you make fewer doses, but with an example as extreme as GPs it doesn't really matter (with the exception that we now have to assume the existence of some kind of insurance with copay, otherwise I don't know how 900 people afford $365k/year in medical costs). And you can still come in with the offer to purchase 1000 doses per day at a price that satisfies both sides.
You just hit upon the problem.
> Some families spend thousands of dollars each year to buy orphan drugs, which are drugs that have received a special designation from the U.S. Food and Drug Administration. About 1 in 8 families [with children taking orphan drugs] paid more than $2,000 a year in 2018 – double the percentage who spent that much in 2013.[0]
Put that up against the US median household income of $67.5k (or $46.6k for black households)[1], and you've got yourself a significant expense. Keep in mind, this is only the median income. 8.7% of households make between $15-25k per year[1] and probably can't afford the copays, much less the insurance.
If it's a scenario where it's "take the drug or a kid dies," more than 1/10th of those kids die, absent any outside financial help. And, that would be quite a lot of financial help, too.
Let's not also forget this kid is probably uninsurable, so, they'll have to have group health insurance for the entirre rest of their lives. Better not get fired from your job when you're past 26, kiddo!
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[0]: https://labblog.uofmhealth.org/lab-notes/big-costs-for-small...
[1]: https://www.census.gov/library/publications/2021/demo/p60-27...
The reasonable way to run health insurance is what most European countries do, with various implementations: you get health insurance when you are born, and you can't get out. That way the insurance can actually work as an insurance (averaging out risk), can't be gamed, everyone is covered, and if your work isn't your insurance you have a freer labor market.
Can we observe this anomalies(giants, monopolies,duopolies, cartels , ) appearing then try different strategies to prevent that to happen? Would be cool to maybe do a search algorithm to find the best strategy to distribute money, healthcare, education to as many people as possible and could be also cool to test your own ideas, like maybe I am thinking that a tax/regulation for X would have some good effect, I could put it in the simulation and maybe discover something I did not anticipated.
In that context it's important to note that collective bargaining is very much a feature of a pure capitalistic system. Just as the supply side seeks advantages by forming monopolies or cartels, the demand side seeks advantages by forming unions or purchasing pools. Both sides face similar challenges with this, like holding the group together and prevent betrayal (so you have to set up a Nash equilibrium where any one party leaving loses from doing so). You can certainly end up with universal healthcare in a pure capitalistic system because for the buyer side it decreases risk (because of the insurance characteristics) and lowers costs (due to the collective bargaining).
That way, they make even more money, which in the scope of saving 1000 lives per year, I’m totally cool with as it tends to support those drugs getting developed and produced.
Wealthy nations end up subsidizing the cost for poorer nations.
Or "subsidizing" the new yachts for the big bosses. Also many things were created by scientist from non-western countries, so we poor countries also contributed to those yachts with out taxes to pay the education of our people.
Do you think that without the big dirty profits that are split between billionaires the people that work on science would work on something else, like cooking? I mean why would they care that their boss will have a smaller yacht? I am also assuming that not all people that start a business are doing it for a giant dirty pile of money, most will do it for enough money for a decent life, some are doing it because they want to do something positive, and only the evil bastards will do it to make tons of money by exploiting others.
This analysis has a fundamental flaw because medical inventions aren't a one time thing, it's a iterated over multiple times. I'm sure the government expropriating the drug and selling it for $1 would produce the best outcomes for this iteration, but what about future iterations? In other words, what about all the drugs that won't be discovered in the future because there's no expectation of returns?
I understand that say a business man that is not a researcher will want to put his money into researching the thing that gives him the most amount of money back so there is a risk that all billionaires will leave the big pharma and invest into homeopathic products but maybe we could find a solution, date I say, tax the obscene profits and use the money into research of important stuff?
What counts as "obscene profits"? Purely from a % point of view? What if the drug has high R&D costs? What if they drug have a small patient base to amortize fixed costs over? What if the drug was a moonshot project with little chance of succeeding?
>What would happen is maybe some immoral people would change jobs to the ones that maximizes profit/work done.
But don't we want that? If we want rare diseases cured, we shouldn't depend on the efforts of altruistic researchers alone. Promise of high drug prices allows companies to attract more researchers, both altruistic and immoral/indifferent ones.
>tax the obscene profits and use the money into research of important stuff?
I don't get it. So you're okay with obscene profits, as long as they're taxed appropriately?
No, this was a possible solution
>What counts as "obscene profits"? Purely from a % point of view? What if the drug has high R&D costs? What if they drug have a small patient base to amortize fixed costs over? What if the drug was a moonshot project with little chance of succeeding?
I included all of this.
My issue is with this law of economics "prices should be the maximum possible" so if you notice the R&D, risks are not part of the price, is all about maxing it out at any costs (lives, environment,some laws etc). Of course you should make enough profit to recover your R&D, risks and all the other costs the problem is the economic people will tell you don't stop.
Btw there are people that are not obsessed by making more money, especially by harming others, but I seen a lot of "how to get rich fast" books,webinars etc where some dude will teach you how to sucker others and make a lot of profit.
Risks are not part of the price, but the max price you can charge (either by caps imposed by governments, or your customer's purchasing power), market size, risk, and R&D costs factors into an overall equation that determines whether a drug project can be funded or not.
> is all about maxing it out at any costs (lives, environment,some laws etc). Of course you should make enough profit to recover your R&D, risks and all the other costs the problem is the economic people will tell you don't stop.
okay but what what counts as "enough profit to recover your R&D, risks and all the other costs", and who decides? currently it's decided by the market. you guess what the costs are, and decide whether or not to develop the drug accordingly.
The correct price would be IMO the price you would have is there would be competition, so if there would be 10 others creating similar medicine(or CPUs,phones) and what price you would use to be competitive but still profitable ? That would be the correct price.
What happens is if there is not enough competition you max it up 10 times
"Earn" in economics means profit. What you mean, the way it might be said by economists, is you receive $1000 in revenue. That is, funds you get from customers paying for your product.
To go a bit further, you would "earn" that amount less the costs of providing the product, including amortized costs for its development.
In theory if the amortized cost of a dose (including R&D salaries, equipment, drug trials, and manufacturing) is truly $1 per dose for such a tiny addressable market, competitors will pop up all over the place and undercut you on price.
From a game theory perspective, a firm choosing option #3 would lose ALL of their market share to another firm choosing option #2, and would have profit of -$1000 because they are unable to sell any of their doses.
FALSE, In scenario 1 there would be a profit but not the maximum possible profit. This means some dudes will have to use fancy cars and not giant yachts.
>In theory if the amortized cost of a dose (including R&D salaries, equipment, drug trials, and manufacturing) is truly $1 per dose for such a tiny addressable market, competitors will pop up all over the place and undercut you on price.
FALSE, competitors will not be allowed to make this for 10 or 20 years.
>From a game theory perspective, a firm choosing option #3 would lose ALL of their market share to another firm choosing option #2, and would have profit of -$1000 because they are unable to sell any of their doses.
FALSE, if there are 2 companies that sell same products there is an equilibrium where you split the market in half and have both more profits then one dominating the market but with small prices. This is the prisoner dilemma, if you cooperate you get better results for both.
> we sell it with 1$ [sic]
Your profit here is zero, in your own hypothetical scenario. Help me understand why the Math is different.
> competitors will not be allowed to make this for 10 or 20 years
You didn't mention your stance on patents and/or intellectual property. If a medicine is patented, would you be in favor of stealing the patented ideas from the inventor in order to lower costs for life-saving medicines through increased competition? This sounds nice, akin to stealing a loaf of bread when you are hungry, but I can't help but think a society that condones stealing inventions from inventors would breed many inventors. Then we are left with the "nobody made the medicine" problem.
EDIT: And by "inventors", realistically I mean "firms willing to sink hundreds of millions of dollars into R&D".
Look at it from another perspective: Say there's a company making gummy bears, and they sell the red gummy bears for 2x the price of the green gummy bears, although they cost the same in production. Would you claim that this company is acting immorally?
Yes, it's called capitalism and private property, the two most insane human inventions across history.
That's also the system that has produced more wealth and prosperity than any other system in human history. Yes, unchecked capitalism leads to great problems, but there's no such thing as unchecked capitalism anywhere in the Western world today, not even in the US.
I did not learn enough economy in school, so is there no limit for this?
Example, I invent a medicine for a rare illness that kills 1000 people/year. It costs me 1$ for treatment but when I want to sell this the money dudes make this calculations:
1 if we sell it with 1$ we earn 1000$/year and we have 0 deaths because all 1000 people afford it
2 if we sell it with 10$ , only 900 people aford it and we earn 9000$ and we kill 100 people with our greed
3 if we sell it with 100$ then only 100 people afford it but we earn 10000$
then the guys make a plot and find that we make more profit when we let most of our possible customer to die , but since we have shareholders and everyone wants money we doom 900 people to death so we can earn 10x more money.
There should be some limits/incentives where such immoral shit won't happen, but so far the only thing I noticed was when asshole was shamed on Twitter for some medicine price increases (I forgot the name).
This idea of a price to be the maximum number that maximizes our profit and not consider any morality is IMO evil. It also has the side effect where you get giants like Google,Facebook,MS, Apple that have too much profit that they use to do evil things, things that free market people consider wrong.