21.10.04

CALLING FOR MORE ECONOMIC LITERACY. Russell at Cafe Hayek is unimpressed with a recent Washington Post article purporting to explain why there are "only" two domestic manufacturers of flu vaccines. One gets the sense that the article is a complete waste of time:
We're now a little over halfway through the article and we have four reasons for why so many producers have exited the market. But all of these reasons were there five years ago when there were four producers and I'd guess that most or all of them were there 30 years ago when there were over a dozen producers. None of the reasons given have anything to do with anything that's changed recently that has made vaccine production increasingly less attractive.
And his conclusion is depressing.

The bottom line: the vaccine business is less attractive than it used to be. If we want to make it more attractive, either prices have to rise or regulations have to relax. My guess is we're going to end up with more government involvement not less.

A market-based economy is hard to sustain unless people understand how it works.

Kevin at Truck and Barter has been looking at Canadian drug production, and Canadian purchases from U.S. manufacturers at reduced prices, which U.S. patients are now attempting to exploit.
Why politicians think a country of 31 million people that has price controls on pharmaceuticals has enough excess drugs just sitting around that the US can start shopping like Paris Hilton on a bender is beyond me. I'd consider this a smart move on the part of these pharmacies. On the other hand, of course, this just means that those pharmacies that will sell to the US are going to be able to demand higher prices. If enough places adopt the no sales policy (to swing once again the other direction), the prices for those drugs that are available may rise to near-US levels, eroding the benefit. (Does anyone know if the price controls in Canada apply to international sales? I couldn't find anything in a quick search.)
It occurs to me that we might be seeing a variant of the peak load pricing phenomenon (there is a wonderful article by Oliver Williamson that appeared in the American Economic Review in 1966, and it's still worth reading and understanding. Sorry, I didn't turn up an online presentation of the argument. If one exists, please advise.) U.S. drug consumers are paying a price that reflects the costs of expanding capacity, while Canada's health ministry is able to negotiate a price that covers only the incremental cost of the drugs, by playing one producer against another. But if sufficiently many U.S. consumers start buying drugs from Canada, that has the effect of shifting the peak.

There are several posts at Truck and Barter on vaccine shortages and drug prices. Head over and have a look.

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