[dv_dt]

> Actual markets don't work that way.

Isn't that exactly what's happening in slower motion with the incredible price hikes in many drugs such as insulin? And you assume that the neighborhood can sustain two emergency rooms - a second competitor isn't going to arise if the setup costs are high and the competitor can't undercut and survive the competition phase. This is exactly why there aren't multiple competitors to residential ISPs, because after the risk and costs are factored in setting up overcapacity for a market isn't a good investment.

Further if you look at the drug markets, sufficient cost and time barriers exist and allow even makers of generic drugs (with no patent monopolies) to charge inhuman rates for drugs. And generally investors are not going to back efforts to fund a head-to-head competitive slugfest when the market of users for a given drug is basically of fixed size. Again building overcapacity is generally avoided in these markets because of the high entry barriers.

https://www.nytimes.com/2017/04/14/business/lannett-drug-pri...

[AnthonyMouse]

> Isn't that exactly what's happening in slower motion with the incredible price hikes in many drugs such as insulin?

Again, the market for medicine suffers from regulatory capture. The regulations make it prohibitively expensive (literally millions of dollars) for new competitors to enter the market, which allows the incumbents to conspire to fix prices.

If we had the same standards for manufacturing medicine as we have for manufacturing food, that wouldn't be happening.

> And you assume that the neighborhood can sustain two emergency rooms - a second competitor isn't going to arise if the setup costs are high and the competitor can't undercut and survive the competition phase.

All you need is for the profits from entering the market to exceed the entry cost, which is exactly the case when the existing provider is charging outrageously high prices.

It is certainly true that adding a competitor will increase total costs. But that means total costs will at most double. That's not good, but it's not anywhere near as bad as having a monopoly that can demand your lifetime earnings in exchange for saving your life.

And everybody knows that to begin with, which is why you get this:

> This is exactly why there aren't multiple competitors to residential ISPs, because after the risk and costs are factored in setting up overcapacity for a market isn't a good investment.

It would be a good investment if the incumbent ISP was charging $500/month for residential internet service. But they know if they did that then it would open the door to a competitor who could charge $400/month and still pay the cost of duplicating the entire infrastructure.

So instead the incumbent charges $50-$100/month, even in areas where they have a monopoly, because they know that price is low enough to deter new competitors from entering.

A credible threat of competition is enough to prevent prices from becoming completely outrageous even in areas where there continues to be a monopoly in practice. Only monopolies under no threat of competition, like the ones enforced through patents or Certificate of Need laws, can charge outrageous prices without that happening.

[dv_dt]

Did you read the linked article? A generic maker of generic drugs in dramatically increasing prices with no sign of the entrance of competitors. Competition can enter but the barriers are too high - even without any government protection remaining on the generics in question.

The competition doesn't pay the cost of duplicating production - not after the competition has lowered the price. At least the chance of that is why no one tries to enter.

To make even the generics at a reasonable quality is a barrier sufficient in an of itself. And a competitor risks the incumbent lowering the prices to cut off the incumbent - no investor is signing up for that expensive fight as evidenced by the article... generics are rising in price to reflecting the effectiveness of the barriers. (well and lack of price regulation by our healthcare system)

[AnthonyMouse]

> Competition can enter but the barriers are too high - even without any government protection remaining on the generics in question.

But that's the whole point -- what is causing the barriers to be so high? Regulatory capture isn't just patents. Drug companies like the fact that a would-be competitor has to pay millions of dollars in regulatory compliance costs to enter the market. Because it should cost them $1 to make drugs they sell for $1.25, but apply enough red tape and it costs them $100 to make drugs they can sell for $300. They still can't charge $10,000 because that would invite competitors, but the $99 in overhead is what allows them to charge $300 for something that should cost $1.25. The overhead raises the barrier to competition, resulting in less competition.

And the fact that most of the drugs are paid for by insurance companies or the government only exacerbates the situation, because they're deep pocketed bureaucracies under orders to pay whatever price the seller sets. No surprise the sellers take advantage of that.

> (well and lack of price regulation by our healthcare system)

The problem with price regulation is that it only solves a small part of the problem. If you're wasting $99 in overhead, you might shave off some of the profit margins but you're still spending $100 to produce something that should cost $1 and sell for <$2. You have to actually address the regulatory costs -- and if you did that then you would have competition.

[dv_dt]

Those costs don't go to zero without compliance - there would either be costs to manufacture with sufficient medical quality or people would be getting shoddy drugs (which is a human cost). Blackmarket drugs get cut or replaced or just have random terrible things mixed into it all the time so I am skeptical of zero-compliance cost drugs.

[alexanderstears]

Okay, if you want to pay extra for compliance, you're allowed to do so. Just as you're allowed to spend more on iPhones. It's mean-spirited of you to argue that others should be bound to your quality expectations.

[dv_dt]

If you don't want the quality, you are free to go procure the medical drugs and services from a back alley, but I doubt it's worth all the verification work that would require...

[AnthonyMouse]

Compliance costs can be low without being ineffective. You can buy a bag of spinach for $2 and yet so few of them are infected with salmonella that when it does happen it's a huge scandal.

[Trundle]

>even without any government protection remaining on the generics in question

Go try to make and sell some generic drugs and see how far you get. Spoiler: you're very wrong.