17.1.19

WHY TRADE TESTED BETTERMENTS MATTER.

There was an interesting segment on Wednesday's NBC Nightly News about the pricing of a gene therapy that saves the vision of retinitis pigmentosa sufferers.


"The CEO says the $850,000 price tag is based on what juries have awarded someone who’s been blinded."

As a pricing strategy, it's not crazy: the perfect price discriminator, after all, extracts all the consumer surplus from buyers.  Damage awards might be a pretty good proxy for economic welfare, that is why economics students learn about the money metric utility function.

As an exercise in corporate spin, it's intriguing, as the CEO isn't indulging in the usual "compensated for taking all the risks of innovation" that Big Pharma often trots out to explain the high prices of wonderful stuff that formerly wasn't available at any price.

But extracting consumer surplus or arguing from the costs of development are warning signals of entrepreneurs addicted to somebody else's, usually insurance or taxpayer, money.  I'm sure the inventor of the motorcar or portable telephone or radar detector or any of the other conveniences of modern life would like to extract all the consumer surplus from being able to get to work faster or close that deal from anywhere or crowd the speed limit with that priority cargo.

That's why it's useful to introduce additional entrepreneurs, in order that the gains from trade can be identified and acted upon in such a way that we have an efficient allocation of resources among consumer electronics and gene therapies and all the other things that make our existence less nasty, brutish, and short.

Dear reader, whenever you encounter discussions of affordability, consider that, as is the case with drug developers and higher education's administrators, you are dealing with people who are addicted to somebody else's money, and they'd rather you try to get some of it.

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