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by dv_dt
3171 days ago
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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) |
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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.