Quotulatiousness

March 19, 2016

The Monopoly Markup

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 18 Mar 2015

Ever wonder why pharmaceuticals are so expensive? In this video, we show how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

March 16, 2016

The Social Welfare of Price Discrimination

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

Now that we’ve learned a little about price discrimination, we can begin to think about whether or not price discrimination is bad for society. How does price discrimination affect output, and what is this effect on social welfare? If price discrimination increases output, it is likely beneficial for society. If output isn’t increased, social welfare is reduced. What are some examples of perfect price discrimination? Universities practice perfect price discrimination all the time. Students pay different amounts for their education based on many different factors surrounding each student’s ability to pay. This practice increases profits and also increases the number of students able to attend college. For this reason, price discrimination by universities likely increases social welfare.

March 6, 2016

European Socialists During WW1 – Frontline Medics I OUT OF THE TRENCHES

Filed under: Europe, History, Military — Tags: , , , , — Nicholas @ 02:00

Published on 5 Mar 2016

Indy sits in the chair of wisdom again to answer your questions about World War 1. This time we are talking about the German parliament, the European socialist movement and frontline medics.

January 20, 2016

QotD: Nursing

Filed under: Health, History, Quotations, Science — Tags: — Nicholas @ 01:00

In the company of medical people who know the history of their craft you can get a good discussion going about the exact date after which medical attention was more likely to help than harm you. Opinions generally settle somewhere between 1910 and 1940.

That’s within living memory. People of the generation before my own had little to hope for from medicine. The more realistic among them knew this. My own father, born 1899, regarded the entire medical profession with fear and mistrust. A hospital, he believed, was a place where poor people went to die. A major theme in the background noise of my childhood was the voice of my mother — a professional nurse — nagging Dad to go see a doctor about some ailment he was suffering. “Why won’t you at least go see him? He won’t HURT you.” Dad knew better. Most things mend by themselves. He lived to be 85, dying at last of pneumonia, which was known to people of that generation as “the old man’s friend.”

It wasn’t all negatives before “the early 1950s, when medicine was turning into a science” (Lewis Thomas). There was nursing; there was surgery; there were a handful of useful drugs.

Nursing — the art of keeping patients clean, comfortable, and cheerful — must have saved far more lives than doctoring in the long dark ages before antibiotics. Florence Nightingale (a significant mathematician, by the way) has to be reckoned one of the great benefactors of humanity.

John Derbyshire, “The Scariest Science”, Taki’s Magazine, 2014-11-13.

January 19, 2016

Non-conspicuous consumption of quality

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Don Boudreaux on the amazingly thin line that now separates many of the quality consumption goods of the ultra-rich from the nearly as high quality goods of ordinary North American consumers:

This list includes also non-prescription pain relievers, most other first-aid medicines and devices such as Band-Aids, and personal-hygiene products such as toothpaste, dental floss, and toilet paper. (I once saw a billionaire take two Bayer aspirin – the identical pain reliever that I use.) This list includes also gasoline and diesel. Probably also contact lenses.

A slightly different list is one drawn up in response to this question: When can median-income consumers afford products that, while not as high-quality as those versions that are bought by the super-rich, are nevertheless virtually indistinguishable – because they are quite close in quality – to the naked eye from those versions bought by the super-rich? On this list would be most clothing. For example, an ordinary American man can today afford a suit that, while it’s neither tailor-made nor of a fabric as fine as are suits that I suspect are worn by most billionaires, is nevertheless close enough in fit and fabric quality to be indistinguishable by the naked eye from expensive suits worn by billionaires. (I suspect that the same it true for women’s clothing, but I’m less expert on that topic.)

Ditto for shoes, underwear, haircuts, corrective eye-wear, collars for dogs and cats, pet food, household bath towels and ‘linens,’ tableware and cutlery, automobile tires, hand tools, most household furniture, and wristwatches. (You’d have to get physically very close to someone wearing a Patek Philippe – and you’d have to know what a Patek Philippe is – in order to determine that that person’s wristwatch is one that you, an ordinary American, can’t afford. And you could stare at that Patek Philippe for months without detecting any superiority that it might have over your quartz-powered Timex at keeping time.) Coffee. Tea. Beer. Wine. (There is available today a large selection of very good wines at affordable prices. These wines almost never rise to the quality of Chateau Petrus, d’yquem, or the best Montrachets, but the differences are often quite small and barely distinguishable save by true connoisseurs.)

I’ve made this point about the wines before (I’ve tasted each of those wines, but don’t believe the price difference justifies buying them over nearly-as-good equivalents that lack the prestige factor), but Don is talking a much wider range of goods and services where there’s barely any real quality difference between “ordinary” and what the very richest among us can obtain.

January 16, 2016

Introduction to Price Discrimination

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

Price discrimination is common: movie theaters charge seniors less money than they charge young adults. Computer software companies sell to businesses and students at different rates, often offering discounts to students. These price differences reflect variations in the elasticity of demand for these different groups. When demand curves are different, it is more profitable to set different prices in different markets. We’ll also cover arbitrage and take a look at some examples of price discrimination in the airline industry

December 30, 2015

QotD: Medicine before antibiotics

Filed under: Health, History, Quotations, Science — Tags: — Nicholas @ 01:00

Explanation was the real business of medicine. What the ill patient and his family wanted most was to know the name of the illness, and then, if possible, what had caused it, and finally, most important of all, how it was likely to turn out

[…]

During the third and fourth years of [medical] school it gradually dawned on us that we didn’t know much that was really useful, that we could do nothing to change the course of the great majority of the diseases we were so busy analyzing, that medicine, for all its façade as a learned profession, was in real life a profoundly ignorant occupation

[…]

Once you were admitted [to hospital] … it became a matter of waiting for the illness to finish itself one way or the other … Medicine made little or no difference.

Lewis Thomas, The Youngest Science, 1983, quoted by John Derbyshire in “The Scariest Science”, Taki’s Magazine, 2014-11-13.

December 15, 2015

Hillary Clinton’s well-intentioned plans will make the prescription medicine market even worse

Filed under: Business, Economics, Government, Health, USA — Tags: , , , , — Nicholas @ 04:00

Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:

Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.

This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:

  • Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
  • Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
  • Cap out-of-pocket costs for drugs
  • Reduce the exclusivity period for biologic drugs
  • Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
  • Allow drug reimportation
  • Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
  • Allow Medicare to “negotiate” drug prices

Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.

Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?

Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”

[…]

Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.

December 14, 2015

The Monopoly Markup

Filed under: Economics — Tags: , , , — Nicholas @ 04:00

Published on 18 Mar 2015

Ever wonder why pharmaceuticals are so expensive? In this video, we show how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

December 8, 2015

Still more to learn about the human immune system

Filed under: Health, Science — Tags: , , — Nicholas @ 03:00

A brief post at Real Clear Science on a recent discovery in human immunology:

Think again if you thought that doctors had long since identified and described exactly how the body defends itself against microorganisms.

Scientists have recently discovered a whole new side to the immune system: a rapid immune response that kicks in well before any of the other known mechanisms.

“I hate to use the term ‘text books will write about this’, but this [discovery] really is brand new and we will need to write a new chapter,” says co-author Søren R. Paludan, professor of virology and immunology form the Department of Biomedicine, Aarhus University, Denmark.

In collaboration with groups from the US and Germany, the scientists showed that when the body’s outer defence, the mucosa lining that surrounds certain organs, is disturbed by a virus, the underlying layer of cells are the first to react and sound the alarm. They summon the body’s cell soldiers, which attack the invading virus.

Both this alarm system and the ‘soldier’ cells operate completely separately from what were believed to be the first responders to immune system attacks.

December 2, 2015

Maximizing Profit under Monopoly

Filed under: Economics, Health — Tags: , , , , — Nicholas @ 05:00

Published on 18 Mar 2015

AIDS has killed more than 36 million people worldwide. There are drugs available to treat AIDS, but the price of one pill is incredibly high in the U.S. — coming in at 25 times higher than its cost. Why is that? In this video, we show how patent rights have created a monopoly in the U.S. market for AIDS medication, causing pills to be very expensive. In other countries, however, such as India, which does not recognize patents on AIDS medication, prices remain low. Using this example, we go over how monopolies use market power to increase prices.

October 28, 2015

Reducing the costs of regulation

Filed under: Bureaucracy, Government, Health, USA — Tags: , , — Nicholas @ 04:00

Henry I. Miller discusses a worthwhile regulatory change that would increase the availability of medicines in the US marketplace without reducing public safety:

The FDA would be a good place to start. Bringing a new drug to market now requires 10-15 years, and costs have skyrocketed to an average of more than $2.5 billion (including both out-of-pocket and opportunity costs) – largely because FDA requirements have increased the length and number of clinical trials per marketing application, and their complexity.

The detrimental effects of FDA delays in approving certain new drugs already available in other industrialized countries are well-documented and deserve as much attention as drugs’ high costs. An example is the three-year delay in the approval of misoprostol, a drug for the treatment of gastric bleeding, which is estimated to have cost between 8,000 and 15,000 lives per year.

[…]

A practical workaround to overcome regulators’ risk-aversion and capriciousness would be “reciprocity” of approvals with certain foreign “A-list” governments, so that an approval in one country would be reciprocated automatically by the others. That would make more drugs available sooner in all of the participating countries, increasing competition and putting downward pressure on prices.

Such an innovation would also help to alleviate another critical problem: The United States is experiencing shortages of certain critical pharmaceuticals, many of which have been essential in medical practice for decades. The majority are generic injectable medications commonly used in hospitals, including analgesics, cancer drugs, anesthetics, antipsychotics for psychiatric emergencies, and electrolytes needed for patients on IV supplementation. Hospitals are scrambling to assure adequate supplies of drugs that are in short supply, or to find substitutes for them. Reciprocal approvals would make numerous alternatives available.

As referenced yesterday, the FDA regulations also create temporary monopoly situations where only one company has the permit from the regulator to produce this or that medicine, so there’s nothing standing in the way of massive price increases if there are no close substitutes to provide price competition.

October 27, 2015

Update on that $750 pill and the regulatory system that made it inevitable

Filed under: Bureaucracy, Business, Health — Tags: , , — Nicholas @ 05:00

Tim Worstall follows up on all-world scumbag Martin Shkreli and his enabled-by-the-regulator insane price increases for a decades-old drug:

We have an interesting and important economic lesson for public policy here: markets, they work. More accurately, we don’t have to worry about someone attempting to exploit their possession of a contestable monopoly. We only have to worry, possibly take action, if someone has an uncontestable monopoly. And given that there’s very few of them that we don’t create ourselves for other reasons, this means that monopoly is just one of those things we can keep a wary eye upon but not worry over excessively.

Our example comes from Martin Shkreli. The basic background is that this entrepreneur thinks he’s found a pretty cool business model. There’s a number of pharmaceuticals out there that are well out of patent but still have small and useful markets. FDA regulations (no, we’ll not go into the details of how or why this happens) mean that it’s not as easy as one might think to produce generic versions of these out of patent drugs. So, as a business plan, buy up the rights to the permit-ed (as in, with a permit, not just those allowed, as in permitted) generics and as a result of the difficulty someone else will have in getting into the same market, some pricing power is available. You can then raise the price and start to bank your considerable profits.

This caused outrage when Shkreli announced that this was exactly what he was doing:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750…

A 5,000% price rise certainly indicates that Turing thinks it has pricing power and thus that it has considerable monopoly power.

[…]

Markets, they work. As Mr. Shkreli is just finding out:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750, now has a competitor.

    Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company based in San Diego, announced today that it has made an alternative to Daraprim that costs about a buck a pill — or $99 for a 100-pill supply.

This is not the same drug: it’s a slight variation, a close substitute. But it’s close enough that Turing isn’t going to be making much money from what it thought was monopoly pricing power. Because it was a contestable monopoly, not an absolute one.

October 8, 2015

“[P]harmaceutical companies … make out like bandits from the existence of the patent system”

Filed under: Bureaucracy, Business, Health, Law, USA — Tags: , , , — Nicholas @ 05:00

The current US patent system is set up to create and maintain — for a limited time — monopolies that can be exploited by pharmaceutical companies:

The Wall Street Journal has a puzzling piece complaining about how the pharmaceutical companies seem to make out like bandits from the existence of the patent system. What puzzles is that the entire point and purpose of the patent system, in an economic sense, is so that inventors of things can make out like bandits. The background problem is that of public goods, something I’ll explain in a moment. That problem leads us to thinking that a pure free market in things which are public goods isn’t going to work as well as something a little different. So, we design something a little different. And the point and purpose of our design is so that people who innovate can make vast mountains of cash out of having done so.

It’s then more than a bit odd to point out that our system enables people who innovate to make vast mountains of cash.

[…]

Which brings us to the subtlety of those pricing decisions. With drugs, pharmaceuticals, close enough the cost of manufacturing a dose is zero. All of the costs go in the original research, the clinical testing (the lion’s share) and getting it through the FDA. Profit is therefore determined, since marginal production costs are zero (they’re not, accurately, but close enough for this comparison), by gross revenue. And we want to maximise the incentive for people to innovate, that’s the very reason we’ve got this patent system in the first place, and thus we would rather like the pharma companies to be maximising revenue.

And thus, from this economic point of view, we should be quite happy with people raising their prices. Demand does fall as they do so, yes, but as long as gross revenue increases, the price rises more than compensating for the fall in unit demand, then we should be happy with the way the system is working. Gross revenue is being maximised, profits are being maximised, incentives to innovate are being maximised. That’s what we want our system to do after all.

Far from being worried about this price gouging we should be welcoming it. Because, obviously, someone making bajillions out of having innovated a drug to cure a disease increases the incentives for many other people to go and invest bajillions of their own to cure other diseases. Far from complaining about it we should be celebrating the system working.

September 14, 2015

An Introduction to Externalities

Filed under: Economics, Health, Science — Tags: , , , — Nicholas @ 04:00

Published on 18 Mar 2015

What are externalities and what are the different kinds of costs? And what does this have to do with the rise of “superbugs”? This video is an introduction to externalities, including the concepts of private cost, external cost, and social cost. Using the example of antibiotics and viruses, we take a look at how costs are passed along to different members of society beyond the producer and consumer. We’ll use a chart to illustrate how to calculate the effects of a Pigouvian tax, and we provide definitions for the other key terms that will be used throughout this video series.

Older Posts »

Powered by WordPress