Turns out honesty isn't always the best policy

[Homicidal_Squirrel]

Martin Shkreli admits to raising the price of a drug to make money, and people get mad at him. This article says the drug Daraprim cost $18 per pill, but I've seen other articles claim it cost $13.50, so who knows what the actual cost of it is. In any case, he raised the prices up to $750 per pill because he could. It's totally legal for him to do it. People get upset at this one guy because he is actually honest about how the drug industry works. There's a bunch of meds being ridiculously priced, and yeah, it's a jerk move, but why are people getting so riled up by what this one guy did? Why not get upset tat the whole pharma-industry?

 

[Kramodlog]

If you did, you'd be critiquing capitalism and be making a case for governments regulating industries. That is bad, m'kay?

 

[Ovinomancer]

If you did, you'd be critiquing capitalism and be making a case for governments regulating industries. That is bad, m'kay?

Strawman. There's a difference between regulated capitalism and unfettered capitalism. Government has a compelling interest to regulate the excesses of the market and this isn't controversial on either side. The difference is the choice of what needs to be regulated, which is a political choice, not an economic one. There are valid critiques of capitalism, but discussion if government regulation or lack thereof is not one of then. Regulation exists on a scale between lassiez faire and socialism, but it's all capitalism.

 

[tomBitonti]

I take more of an issue with anti-competitive practices enacted in concert with the price increase.

Absent substantial barriers to entry, a competing generic should arise which should cause the price to drop. You would expect there to be a manufacturer who targets this specific industry segment taking advantage of these sorts of cases. Or that the government would assist in small market areas to prevent this practice.

Except, this drug has a substantial artificial barriers: Distribution is being artificially constrained to increase the difficulty of certifying a generic competitor.

Generally, if prices remain unusually high in a market, that implies a constraint on the market, or that the market is a natural monopoly (and should be subject to regulation).

Also, generally speaking, markets can and should be regulated to achieve policy ends, or to overcome structural failures of the market. For example, pollution costs are easy to externalize. Therefore, regulation is necessary to reduce pollution.

Thx!

TomB

 

[Kramodlog]

There's a difference between regulated capitalism and unfettered capitalism.

Of course.

Government has a compelling interest to regulate the excesses of the market and this isn't controversial on either side. The difference is the choice of what needs to be regulated, which is a political choice, not an economic one. There are valid critiques of capitalism, but discussion if government regulation or lack thereof is not one of then. Regulation exists on a scale between lassiez faire and socialism, but it's all capitalism.

Yes, but you can also critique capitalism and advocates its replacement altogether. It is a bit of a taboo to do such a thing nowadays, but it is still a thing. But what I was saying is that today if you propose reform or regulation of capitalism some people will attack you because they think you oppose capitalism altogether. It is a position that comes from ignorance and ideological thinking, but it is a position that is pervasive none the less.

So, talking about regulating the price of medicine in the US is a tricky subject, as you risk being attacked and protrayed as someone who is against capitalism, whether that is true or not. Obama was labelled anti-capitalist early on. Even if it wasn't true, that, among other things, didn't help him govern.

 

[Homicidal_Squirrel]

I take more of an issue with anti-competitive practices enacted in concert with the price increase.

Absent substantial barriers to entry, a competing generic should arise which should cause the price to drop. You would expect there to be a manufacturer who targets this specific industry segment taking advantage of these sorts of cases. Or that the government would assist in small market areas to prevent this practice.

Except, this drug has a substantial artificial barriers: Distribution is being artificially constrained to increase the difficulty of certifying a generic competitor.

Generally, if prices remain unusually high in a market, that implies a constraint on the market, or that the market is a natural monopoly (and should be subject to regulation).

Also, generally speaking, markets can and should be regulated to achieve policy ends, or to overcome structural failures of the market. For example, pollution costs are easy to externalize. Therefore, regulation is necessary to reduce pollution.

Thx!

TomB

The problem with Daraprim, previously to the price increase at least, is that the brand name drug was so cheap. Depending on what article you read, the price was somewhere between $13.50 and $18.00. I'm guessing that there wasn't much, if any profits to be made by having a generic to compete with the brand. When this guy decided he was going to make the price go through the roof, he actually opened the door for a generic to be a viable alternative.

 

[Umbran]

People get upset at this one guy because he is actually honest about how the drug industry works.

Not quite. He claimed that he hiked up the price to fund research for new treatments. But generally the industry does *not* up the price of a drug to fund new research - costs are recouped *after* the research is done. If the research doesn't result in a drug on the market, the company writes it off as a loss.

As for him being honest - a previous company (Retrophin) replaced him as CEO over financial irregularities, and is now suing him for $65 million over misuse of corporate funds. And this is not the first time he has bought rights to a drug, and then jacked up the price - while at Retrophin he did it with the drug Thiola, jacking up the price of the drug 20-fold.

but why are people getting so riled up by what this one guy did? Why not get upset tat the whole pharma-industry?

Because:

1) As noted above, he wasn't operating in the way the whole pharma-industry operates. We are talking about a drug that's been in the market since 1953 - if he wanted a cash-cow, this was not a good candidate.

2) This is a drug that is in low demand, but is pretty darned essential should you need it. The typical customer is immune-suppressed, most often with HIV, so they are *already* paying a boatload for drugs. Suddenly jacking up a lifesaving treatment from something like $1500 to $75,000 a month is going to raise eyebrows.

 

[tomBitonti]

The problem with Daraprim, previously to the price increase at least, is that the brand name drug was so cheap. Depending on what article you read, the price was somewhere between $13.50 and $18.00. I'm guessing that there wasn't much, if any profits to be made by having a generic to compete with the brand. When this guy decided he was going to make the price go through the roof, he actually opened the door for a generic to be a viable alternative.

Hi,

Yes, and we should normally see this, except that, raising the price was not the entirety of what he did.

From: http://www.nytimes.com/2015/09/21/b...se-in-a-drugs-price-raises-protests.html?_r=0

With the price now high, other companies could conceivably make generic copies, since patents have long expired. One factor that could discourage that option is that Daraprim’s distribution is now tightly controlled, making it harder for generic companies to get the samples they need for the required testing.

The switch from drugstores to controlled distribution was made in June by Impax, not by Turing. Still, controlled distribution was a strategy Mr. Shkreli talked about at his previous company as a way to thwart generics.

From that same article, there are other cases of drug price increases. Mr. Shkreli may be an egregious case, but he is not unique.

His statements, however, as presented in several articles, are mostly BS and are indefensible.

Other markets have similar problems. For example:

http://www.businessinsider.com/textbook-price-inflation-2014-4

"In the textbook industry, no such system of checks and balances exist. The professor chooses the book, but the student is forced to pay the price. Because of this, the student is, in essence, a captive market. Without the ability of the student to choose a more affordable option, publishers are able to drive prices higher without fear of repercussion."

Doing some searches, I found this, which is a good read, but only related as a monopolization strategy:

http://www.academia.edu/6974733/PREDATORY_PRICING_AS_AN_ABUSE_OF_DOMINANT_POSITION

This is more on point (pricing of calls from prisons):

http://beta.tutor2u.net/economics/blog/monopoly-pricing-to-a-captive-market

Here is some commentary:

http://www.slate.com/articles/healt...kreli_and_other_monopolists_cornered_the.html

Thx!

TomB

 

[Ryujin]

The idea of a monopoly AND predatory pricing rankles my sense of right and wrong.

 

[Umbran]

The idea of a monopoly AND predatory pricing rankles my sense of right and wrong.

The issues of the drug are not, strictly speaking, a monopoly situation. In fact, the patent on the drug has run out. Anyone can make and sell it under a different name. However, bringing a facility up to speed on production and testing, getting it inspected, and all, would take about six years.