| This sounds like capitalism. This is the inverse of the anti-marketplace argument that capitalism leads to monopolies, which then price-gouge consumers. In this scenario, consumers drive the prices too low and put suppliers out of business. It's the same argument coming from the other direction. Markets don't seem to work like that. Prices get driven down, but not to the point where suppliers go out of business, because they won't sell at that price. Sometimes if margins are too low new players will find efficiencies or new inventions that allows them more profit for awhile. For this to happen you need a balance of power between buyer and seller. It's obvious to me that such a balance is radically absent in the US system right now. Putting governments into the role of buyers is not anti-market - it's pro market because it allows an informed, more powerful buyer that balances the market forces and allows the market to work. (It's certainly possible that other entities, such as insurance companies, could fill the same role.) A worry comes because of the label "single buyer" which is the inverse of a monopoly and is anti-market. But in practice drug companies are global and there are many governments. All this would lead to much lower profits for drug companies, of course, but that's not a pro-market argument, that's a pro-monopoly concern. |
I don't think I have heard such an argument, and I understand the parent comment just fine.
What he means is that, since pharmaceutical and medical supplies companies have large upfront research costs coupled with negligible marginal costs, they face a falling average-cost curve. However, a firm operating under competition has it output at the point where marginal and average costs are equal. The point is that for a firm who profits off research, reaching this point is unfeasible. What all this economic gobbledygook is that, in order to survive, firms have to charge above what would be otherwise the "warranted" price (like the price of the components and labor that go into a kit).
This is more obvious in the case of software, since the cost of copying any piece of software is pretty much zero, anyone trying to sell it for it's marginal price won't ever get what he put in by having written it in the first place. In such markets the socially efficient outcome, the one which makes both consumer and producer better off, is actually to have a single or few firms regulated firms operating under imperfect competition. And all this happens because of the cost structure of the firms, not because of the market itself.
Though I'm rather skeptic that pressing on the suppliers will push them near their marginal costs in this particular case.
https://en.wikipedia.org/wiki/Cost_curve