Quote:
Originally posted by sgtclub
I think we are looking at this from two different vantage points. You seemed to be concerned on a drug by drug basis - if pharma has a monopoly on drug A, then the market for drug A is inefficient. I am viewing this an industry level - it does not matter all that much whether pharma has a monopoloy on drug A, as long as it does not also have a monopoloy on drugs B C and D, because it allows pharma to greater subsidize R&D research on drugs similar to B C and D, as well as future drugs.
Question on your point regarding price descrimination. Couldn't this also be viewed as simply the company setting prices to meet demand in market 2? We've already agreed that demand in the US is artificially higher due to insurance subsidization, so it makes perfect sense that prices in the US would also be higher.
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On para 1, I don't think it matters. There are distortions in each individual submarket, meaning the entire market is distorted. My basic point is that in a market or markets with non-market distortions can be made more efficient through the use of additional (otherwise) distorting mechanisms in some instances. For example, a monopolist can charge supracompetitive prices to a bunch of consumers. But if there's only one consumer, say a beef processing co. or a gov't entity, negotiating on behalf of a bunch of people, they can force those prices back down to competitive levels. Now, in a competitive market, allowing a single payor would suppress competition, but we're not in a competitive market, so it may not be a bad thing.
On para. 2, price discrimination is not viewed as necessarily bad, at least under current antitrust law. There are plenty of pro-competitive justifications for it, one of which is that it allows a company to sell to consumers who otherwise couldn't afford it if there were a uniform price. In fact, with perfect price discrimination, there is no deadweight loss to society because everybody pays exactly what the product is worth to them. Nonetheless, the ability to discriminate on price suggests there is some market power, and the existence of market power suggests teh possibility of inefficiency.
