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Help quickly please (john james especially)

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The Texas Trigger posted on Thu, Apr 26 2012 8:10 PM

My girlfriend needs help with a paper for her writing class that is due tomorrow, and it pertains to economics. She asked me for help with Sources. However, this is an area I know very little about. The general Idea of the paper is she is arguing that more freedom will lead to more consumer choices, which will increase wealth for everybody. I understand the general idea but as far as sources go, I usually can find specifics, however finding the general seems a bit difficult sometimes. More specifically, she wrote a paper on the differences between generic drugs and brand name drugs (i.e. adderall vs wal-mart brand generic amphetamine salts). It was a purely informational paper. Here are the differences in the drug, and here are the differences in prices.

She must tailor her new paper to say that either these choices are a good thing or a bad thing and expound on why. I almost panicked because I was shocked that i could not come up with a good reason why THIS PARTICULAR choice was a good one, considering they are made at exactly the same factory, and are exactly the same drug yet the prices are way different. Other than moral arguments about why government should not limit trade of any kind, it seems like having only the generic would be a better use of the resources because they produce it cheaper and of literally exactly the same quality.

So, can someone, anyone, able to shoot me some sources on this topic and the general topic of why more choices are better, especially in light of this example? I know this is john james specialty, so John, I summon you!!!!

I would like to point out that I understand the competition that choices produce is good because it will lower prices over-all, and that the patent on the drugs drives prices up. Obviously in the scenario of a single player coming in with a patent and then up-charging via government blessing is bad. So when the new guy comes in with the generic this is good. I guess what I'm having difficulty with is how these arguments are to be performed on paper. I know I will need to pre-determine what the other sides of the argument will be to rebut them. Suggestions on things you have heard before would be helpful. I just literally have never given a lot of thought to the whole generic vs brand name question with regard to choice. Or in other words, I understand the choice, in and of itself, is a good thing because then we have a generic to go to. But why is it good for anyone to buy the brand name? If the brand name were produced by a different company, or even a different factory, this wouldn't be a big deal, but it is literally the EXACT SAME THING, just a different color. Is it that some consumers may have perceived psychic gains from taking the brand name because they are ignorant of the facts? Is it that you may think it gives you a higher status? 

 

I know I am rambling, I just don't know how to put the argument on paper (or verbally) as to why it is Good to even have a generic, other than moral arguments that will likely only appeal to people like us. I am looking for arguments that will help persuade the non-believers who don't mind if government just removes the brand name from the shelves. Anyway, I think you guys catch my drift. Enough of me. Let me hear you! 

Thanks  

"If men are not angels, then who shall run the state?" 

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kelvin_silva:

also what does "specialize" mean?

im a beginner with this so explain where i would be wrong.

Again, welcome kelvin.  I know you've already gotten a good start in your opening thread (that one actually inspired my Ultimate Beginner meta-thread, so you might check that one out.)

 

As for this particular question, please see these (in this order:)

When Ideas Have Sex

The Division of Labor

Production and the Firm

 

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JJ, you, sir, are THE man. Thank you. This helped a lot. 

 

 

John James:
of course, there are plenty of economic resources to explain why price fixing is harmful.  Economics in One Lesson provides great arguments.

 

Actually just bought her EIOL the other day. It's her first economic read, and I was proud to get it for her. We will have to dig out my old copy with all my notes and extra sources on each topic. That book became a bit of a roadmap for me early on in my Austrian discovery. I used it to put every note I found on any topic on economics I could find. I totally forgot about that copy as I have like 5 now. 

 

"If men are not angels, then who shall run the state?" 

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The Texas Trigger:
JJ, you, sir, are THE man. Thank you. This helped a lot.

 

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Prime replied on Fri, Apr 27 2012 10:03 AM

I would like to clarify a few things in this thread becaus I think there is some misinformation here. The overall concept you are trying to establish, about different price points for similar/identical items may be valid, but I wouldn't recommend using the pharmaceutical industry as an example.

To begin, brand name drugs quickly die when generics become available. I don't have research in front of me, I'm just using experience here, but lets look at Lipitor as an example. Lipitor recently lost it's patent and I can tell you in just a matter of months I am already dispensing generic atorvasatin at at least a 50% rate, and this is before atorvastatin has even gotten very cheap. And this is in spite of the largest effort from Pfizer in history to keep people on the brand product (you've seen the $4 cards they offer on television commercials). The only reason patients are sticking with Lipitor is because Pfizer is paying the bill for them.

As for the claim that because of the 3rd party system patients don't have to consider the actual price of the medication, this is also false (though it is true in many other aspects of the medical field). If generic meds are availiable, the 3rd party often does not cover the brand name product. And if they do cover the branded product there is always a penalty to be paid by the patient. Perhaps the generic med. costs a $10 copay and the brand has a $50 copay.

In regards to the John Stossel piece about why customers do not bargain hunt for the best price on prescriptions, this is only partially true. If a patient has insurance, their copay  is the same at pharmacy A as it is at pharmacy B, so indeed they don't need to bargain shop. However, as the 3rd party is the central payor, both pharmacy A and B get reimbursed the same amount for the prescription. The 3rd party sets the rate, not the local pharmacy. For patients without insurance, though, this is not the case. They do have to pay different prices, sometimes substantial, depending on the individual pharmacy. I can assure that these patients do shop around for the best price.

On the rare occasion that patients do prefer the brand name product over the generic, I would say it usually comes down to the placebo effect. For example, when I took this blue brand name tablet I felt fine, but when I tried this red generic tablet I had a headache. Well, maybe you would have had the headache anyway, regardless of the medication. You know what I'm getting at. Also, in some rare instances, patients will claim that the generic makes them nauseaus, etc... This may be because the generics do have different inactive ingredients, binders, dyes, or whatever.

The take home point from all of this is that your question as to why do some people choose to pay more for product A than product B may be a good question to ask, but you may get burned if you use the pharmaceutical indusrty as your example.

 

 

 

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Prime:
I wouldn't recommend using the pharmaceutical industry as an example.  To begin, brand name drugs quickly die when generics become available.

a) He said she wrote a paper on the differences between generic drugs and brand name drugs, and apparently found examples where this is not the case.

b) I got the impression this paper was supposed to be a followup to the previous paper...so I'm not so sure she had a choice in using the pharmaceutical industry as an example.

c) The paper was due today, so, ya know.

 

As for the claim that because of the 3rd party system patients don't have to consider the actual price of the medication, this is also false (though it is true in many other aspects of the medical field). If generic meds are availiable, the 3rd party often does not cover the brand name product. And if they do cover the branded product there is always a penalty to be paid by the patient. Perhaps the generic med. costs a $10 copay and the brand has a $50 copay.

Then why are people paying the penalty?  Are you suggesting everyone is just unaware they're paying a penalty and could be buying something else at a lower cost to them?

 

For patients without insurance, though, this is not the case. They do have to pay different prices, sometimes substantial, depending on the individual pharmacy. I can assure that these patients do shop around for the best price.

...you might like Stossel illustrated in an entire segment of that special? 

 

On the rare occasion that patients do prefer the brand name product over the generic, I would say it usually comes down to the placebo effect.

Did I not say it boiled down to psychology?  Yes I didn't mention placebo effect, but I don't see how this changes the argument.

 

The take home point from all of this is that your question as to why do some people choose to pay more for product A than product B may be a good question to ask, but you may get burned if you use the pharmaceutical indusrty as your example.

I'm not clear why she would be "burned" for using this example.  What would the instructor mark off for exactly?

 

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Prime replied on Fri, Apr 27 2012 11:22 AM

"Then why are people paying the penalty?"

The short answer is they are not. I can't imagine that more than 1% or 2% of the prescription volume fits this specific scenario of the patient choosing the branded product when the generic is available. As to why is that small segement choosing the branded product, it's like I said, placebo effect perhaps, and financial assistance from the drug manufacturers (Lipitor card).

"Did I not say it boiled down to psychology?"

I never meant to imply the contrary wink

"I'm not clear why she would be "burned" for using this example."

I got the impression, and I could be wrong here, that the OP thinks this a large problem, that patients are unknowingly getting scammed into paying outrageous prices when cheap alternatives are available. At one point he even mentioned gov. price controls and gov. launching educational campaigns. I'm trying to show that this premise is completely false and to write a paper about this specific subject would be pointless.

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To be clear, i never said i thought those things would be good.

"If men are not angels, then who shall run the state?" 

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Wheylous replied on Sun, Apr 29 2012 11:19 AM

or am i not supposed to use milton friedman's ideas when trying to learn about austrian economics?

Always use everyone's ideas. This isn't a cult that requires a blood pact so that you don't listen to anyone else. The whole idea is to use logic.

yes but then wont you be less careful with money that is not yours?

Yes. It's called moral hazard. When you have all the benefits with none of the losses.

also what does "specialize" mean?

To me, it seemed like you were saying that it would be best if everyone made everything for himself. Hence, I argued that there is much more progress when people specialize in trades at which they are relatively good instead of making everything themselves. That is the idea of comparative advantage - even if I am better at producing all items than you  (use less resources), it stil benefits me to make only a subsection of those and have you make the others (that is the idea of comparative advantage and can also be demonstrated with a Production Possibilities Frontier, if you know what it is).

In fact, a very large chunk of the progress in mankind has come from the division of labor (specialization).

If this doesn't ring a bell, I suggest you read a standard economics text like Principles of Economics​ by Mankiw to get an idea of what standard economics looks like (the micro is generally neoclassical while the macro is Keynesian, so you'll want to go beyond that text and read some Austrian books afterwards, but you should at least know the general outlines of the mainstream story).

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