<story><title>Drugmakers are abandoning cheap generics</title><url>https://kffhealthnews.org/news/article/drugmakers-are-abandoning-cheap-generics-and-now-us-cancer-patients-cant-get-meds/</url></story><parent_chain><item><author>submeta</author><text>Applying my rudimentary knowledge of microeconomics, the situation with the shortage of cancer drugs seems to be a case of a race to the bottom, as one commenter noted. Here, multiple generic drug manufacturers are competing to win sales contracts by offering the lowest possible price. This can be seen as an example of perfect competition, where firms are price takers and compete mainly on price, driving prices down to the point where they equal the marginal cost of production.&lt;p&gt;However, the problem arises when these prices are driven so low that they no longer cover the firms&amp;#x27; average total costs (including both variable and fixed costs), making it unprofitable for them to continue production. Some firms may choose to exit the market, leading to a reduction in supply. This is where the theory of &amp;quot;shutdown point&amp;quot; comes in: firms will choose to shut down production (at least temporarily) when price falls below the minimum point of the average variable cost curve.&lt;p&gt;The complication in this case is that the reduction in supply is occurring for a product (cancer drugs) that is still in demand. However, as one commenter suggested, it&amp;#x27;s unclear whether the demand would support a higher price.&lt;p&gt;There might be external forces (like regulatory environments, health insurance dynamics, and negotiations by large scale buyers) that are keeping the prices artificially low, preventing the price from rising to a level where it would be profitable for more firms to produce the drugs.</text></item></parent_chain><comment><author>hannob</author><text>This is probably a good example why naive market economics thinking is problematic.&lt;p&gt;Any &amp;quot;ideal market&amp;quot; assumes some kind of demand elasticity, i.e. people will buy more when it&amp;#x27;s cheap and less when it&amp;#x27;s expensive. But for cancer drugs, that really shouldn&amp;#x27;t be the case. The amount of drugs a patient takes should be determined by the best science, not some market mechanism.</text></comment>
<story><title>Drugmakers are abandoning cheap generics</title><url>https://kffhealthnews.org/news/article/drugmakers-are-abandoning-cheap-generics-and-now-us-cancer-patients-cant-get-meds/</url></story><parent_chain><item><author>submeta</author><text>Applying my rudimentary knowledge of microeconomics, the situation with the shortage of cancer drugs seems to be a case of a race to the bottom, as one commenter noted. Here, multiple generic drug manufacturers are competing to win sales contracts by offering the lowest possible price. This can be seen as an example of perfect competition, where firms are price takers and compete mainly on price, driving prices down to the point where they equal the marginal cost of production.&lt;p&gt;However, the problem arises when these prices are driven so low that they no longer cover the firms&amp;#x27; average total costs (including both variable and fixed costs), making it unprofitable for them to continue production. Some firms may choose to exit the market, leading to a reduction in supply. This is where the theory of &amp;quot;shutdown point&amp;quot; comes in: firms will choose to shut down production (at least temporarily) when price falls below the minimum point of the average variable cost curve.&lt;p&gt;The complication in this case is that the reduction in supply is occurring for a product (cancer drugs) that is still in demand. However, as one commenter suggested, it&amp;#x27;s unclear whether the demand would support a higher price.&lt;p&gt;There might be external forces (like regulatory environments, health insurance dynamics, and negotiations by large scale buyers) that are keeping the prices artificially low, preventing the price from rising to a level where it would be profitable for more firms to produce the drugs.</text></item></parent_chain><comment><author>resolutebat</author><text>Healthcare is very, very far from &amp;quot;an example of perfect competition&amp;quot;.  For example, there are apparently plentiful supplies of both drugs discussed in the article in China, but they can&amp;#x27;t be legally used because they don&amp;#x27;t have the appropriate FDA paperwork, purchasing agreements with the middlemen who distribute drugs, etc etc.</text></comment>