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 Originally Posted by pantherhound
I remember ITT there was a video about the merits of price gouging.
I would be interested to hear views on the recent news about the pharmaceutical CEO who raised the price of a drug used to protect AIDs and cancer patients by 5,000%. Each pill costs about a dollar to produce. The guy claims he needs to make a profit, but it seems there is a lot of scope to reduce the price for moral reasons given the large margin he seems to be making and the barriers to entry for competitors?
Seems in this instance price gouging is a bad thing since the product is not scarce and therefore the argument about allocation according to greatest need does not apply.
Government adds a couple of important wrinkles to this situation:
1) Intellectual property laws make it far too easily to monopolize. It's an open debate among free-marketeers of how IP should be handled, but its pretty universally agreed that the current set up is pretty fucked up.
2) FDA. It costs millions of dollars and years of time and taxpayer dollars to approve any new drug. There is a lot of evidence to suggest that the FDA has resulted in far more deaths of patients waiting for drugs than lives saved by bad drugs prevented from market distribution. There used to be set limits for how long the FDA could take to approve a drug (i.e. less than 2 years) but they've thrown that shit out the window. The result is that drugs do not come in a diverse array of slightly different flavors in fierce competition like candy bars, but instead each specific type of drug only comes in one or two flavors which are often owned by the same huge pharma corporation. The FDA is an enormous barrier for entry by competing suppliers.
Yeah, by all accounts this guy seems like a dick, but he's exploiting a situation that could never exist in a free market. This is one of the many situations in which a government takes a huge shit on the people by default, and the expected response is for the people to embrace government to clean it up. So then when government steps in and stops this guy from gouging the price, dozens of other drugs will be scrapped for fear that the government will prevent them from selling at market prices. Remember, new drugs costs millions to research and develop, submit for FDA approval, and ultimately produce on a large scale, and the investors expect a return on all of these costs. Often, a big return, since this is the type of business model that has high volatility: even if the drug makes it through the FDA gauntlet, it may bomb when it hits market. A price control (or the spectre of one) would make taking such a risk unfeasible.
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