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The Fair Price Fallacy


The notion is rampant that producers and businesspersons are responsible for the supply of their goods at a so-called and so-believed fair price. 

What is a fair price after all? Is it not merely the supposition of a price which is only remotely convenient for the individual considering the product? Is it not merely the desired price for any given individual? 

Of course, the producer and the businessperson are easy to vilify in the public eye, as he or she is recognizable as a person who has or who has been fortunate, and the reader or onlooker is hardly familiar with the background or daily routine of that individual. 

However, the narrative of the supposed have-not is gripping and moralistic in stature, and the passerby may easily envision a way in which this individual's perceived misfortune may be corrected by a nominal adjustment of freedom for those whose routine struggles are diluted by their obscurity or their inconspicuousness. 

Nowhere is this discussion more prevalent than within the field of drugs and medicine. 

To become a better student of the discussion on fair pricing in the medical industry, one must investigate the enormity of the built-in, long-run costs of product and safety testing, research and development, clinical, regulatory and quality compliance, and the desensitizing factors of a consumer base widely insulated from drug prices through the apparatus of nationalized insurance and the attending incentives, applied to practitioners through the legal perils of medical malpractice and the aforementioned underexposed consumer, to comprehensively, rather than precisely, prescribe treatment. 

These total costs are incurred by companies whose several products might even fail to reach the market after the arduous 12-year stint from lab to medicine cabinet. 

And remember, of the many drugs that enter preclinical testing, only 0.001% of them will advance to human testing, and from this meager total only 20% will eventually be approved, putting the average probability of any single drug eventually reaching the market at 0.0002%.

By the way, there is roughly a $1 difference between the average price of gas in Detroit and that of San Francisco. 

I am wondering how this cost, as well as the costs of other goods and services, including utilities, rents and mortgages, might be reconciled by the popular and politicized model of deduction which has enabled an assignment of blame and crass scrutiny upon the executives of corporations who have merely priced their products at a market-clearing level which concomitantly satisfies the interests and applied valuations held by their shareholders who have personally taken a stake in their business. 

To be clear, there is nuanced contrast between high-order luxury goods and others which have evolved into basic essentials, expectations or even entitlements. Of course, the majority of these goods which are classified as basic were historically or incipiently deemed luxuries. But over time people adjust their expectation thresholds to anticipate even those returns which have never been procured of their own personal might but rather through a system of transfers politely codified as welfare or the common good. 

The primary distinction between the reception of drug prices and the prices of cars and other luxuries, for instance, where you will find tremendous differences in price by car brand, performance, etc., is the moralistic sentiment backing the institution of thought that individuals, or their perceived standing as something more vile or responsible through the name and edifices forming their corporate countenance, are endowed with that responsibility to target an ill-defined and completely-unknown price level that would be held as more fair. 

Of course, hardly anyone would legitimately claim that BMW or Mercedes-Benz ought to reduce their prices to align with the contentions of so-called or so-believed price pundits who claim to possess knowledge of the elusive fair pricing of products. 

Ultimately, I would urge any economist or logical thinker with a leaning toward truth or objectivity to first question whether a fair price may truly ever exist and more chiefly what any price organically signals to an individual or to the market. And in the case of Mylan, which today falls prey to the heated and accusatory abuse of Congressional opinion, the claims that Mylan has acquired some form of monopoly in the epinephrine autoinjector industry may find traction only due to yet another form of privilege honored by those very talking heads who today relentlessly and unabashedly denounce Mylan's CEO: that privilege of patent protection. 

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