The use of loss leaders in grocery stores is a related example. Some grocery stores, such as a chain local to this area, specialize in conspicuous displays of ultra fresh vegetables. But the extra cost is factored on to a wide variety of other items in the store. Simple soda water for example is about 20c more per bottle than at the competitive chains. For the grocery store the problem is not the profit on any one item so much as it is on getting you in to buy a spectrum of products.
You may find that some drugs, such as those for the old who usually have some kind of coverage, can be more advantageouslyl than drugs for kids of poor people (for example). Sometimes if you're making drug X you get the ingredients for drug Y as a byproduct. How to price drug Y, since you are going to have it no matter what you do, may be a question of expediency or a source of superprofits.
A cartel case in Europe a couple of years ago had major chemical companies agreeing to fix prices on goods X, Y, and Z, but that left them "free" to pursue a wide range of competitive strategies on dozens of other products.
In any case it is true that there is a cozy relationship with FDA and it is true that their profits may be obscene and it is true that there probably should, in this as in other matters, be looked at. For example, testing products in the third world. But if you take say the average seat cost in the airline industry and determine that the *average* cost of a flighted from Boston to San Francisco is $350 then it is wrong to say that the profits on the $1200 first and business class seats are 400% and therefore "obscene." Some of that pricing is being used to discriminate among markets (people whose business does not allow thme to plan departures a long time in advance) versus others (who like to fly cheap and take pains to do so). You may find people paying $250 a seat. The fact that this is 60% of average cost does not make it a "loss" for the airline which is trying to price high inone market and then fills out capacity at or ins ome cases even below marginal cost.
Its extremely complex, but good Marxist analysis of capitalist pricing requires you to take a look at the total picture before latching on to price X, Y, or Z and saying it is "obscene." One could take the position that the drug companies should be limited to say 20% ROI (return on investment) annually but that within that they can spend and price as they wish; they would be akin, in that circumstance, to a regulated utiltity. You could solve equity issues by giving people access to healthcare with drug coverage.
In such a hypothetical universe, you might still find some drugs priced at 400% markup.
gn
Beth Goldstein wrote:
> I'm interested in a Marxist analysis of the health "care" industry,
> particularly pharmaceutical companies. Clearly, their obscene profits
> (sometimes 400-500% on life saving, patent protected drugs) are a product
> of their oligarchic position and their cozy position with the FDA. But I
> am puzzled as to the recent, fairly dramatic, downturn in their stock
> prices.
>
> My background is philosophy, not economics, and I have been studying
> Marxist analysis for a relatively short time. So I could use a little
> help on this one.
>
> What are the important questions to ask?
>
> What explanations can be offered, given that there have been no
> significant patent expirations and that there are no obviously significant
> events (like, say, a move to socialize medical care) to explain this
> downturn.
>
> Beth Goldstein
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