Economics Questions

Re: Should price fixing be legal? Why or why not

John James — Sun, 31 Jul 2011 02:22:58 GMT

Fool on the Hill:
Why have companies historically paid women less than men for the same job?

See here.

Re: Should price fixing be legal? Why or why not

Fool on the Hill — Sun, 31 Jul 2011 02:13:17 GMT

Interesting thread. What about collusion involving wage rates (e.g. creating a maximum wage for a certain job)? Why have companies historically paid women less than men for the same job? Wouldn't competition and the desire for profits equalize wages?

Re: Should price fixing be legal? Why or why not

Autolykos — Wed, 20 Jul 2011 21:57:50 GMT

The movie in question is Vanilla Sky. The actual line is, "What's 'happiness' to you, David?"

Raising donations to pay for drugs, or anything else for that matter, is perfectly fine by me. In a way, one could consider medical insurance to be one way of raising donations for such things. Giving or (more preferably, IMO) lending land and/or labor is a similar means. Of course, one can't give or lend something which he doesn't already own.

Your dad is right. My dad said something similar: "Life isn't fair."

Re: Should price fixing be legal? Why or why not

David Olifant — Wed, 20 Jul 2011 21:39:39 GMT

What movie is that? I give up.

Actually I think it is fair to try to raise donations to pay for the drug, on a voluntary basis of course. One could try to convince the corporate board of the wisdom of being more humanistic as a way of raising the public profile of the company, which might be beneficial to them. I believe many pharmas have actually reined in the price for certain drugs for AIDS, but I don't have the facts in front of me now.

I suppose I have been brought up to value human life, perhaps too much. I agree the government has no right to force a company to lower its prices, "in the public interest". By giving land and labor to the pharma, perhaps it would produce more of the drug if its marginal costs were in part defrayed, like run an extra shift at the factory etcetera. But I guess thats the same as raising cash to pay for the drug.

No one has the right to be given the things they need to live, like food, shelter, etc. They or their loved ones need to work or pay for them. My dad used to say "The world doesn't owe anyone a living". So you are not owed the miracle drug either.

Re: Should price fixing be legal? Why or why not

Autolykos — Wed, 20 Jul 2011 21:17:41 GMT

David Olifant:
But what about the situation where, for example, a pharmaceutical company is the only source for a life saving drug during an epidemic, or even just during the regular modest incidence of a fatal illness. The families/patients are likely to have getting the drug pretty high on their priority list, preferring to pay a lot to avoid the "disutility" of death. Is it moral for the producers to just use the inelasticity and jack up the price maximizing total income until the price becomes so high that the curve becomes elastic in that price range, and people are willing to die, or let grandma die, rather than pay the price?

What's "morality" to you, David? (+1 internet if you correctly guess which film I'm paraphrasing.)

Here's my take on it: the existence of a life-saving drug does not prima facie entitle anyone to the use of it, for free or at any particular price, in order for his life to be saved. Given that, it cannot follow that anything was prima facie taken away from him (including his very life) if he can't afford to use said drug. Although, on the other hand, no one has to approve of what someone charges for using a life-saving drug or any other good or service, I don't think anyone has the moral right to then force that person to change it. To do so would constitute aggression, in my book.

Your suggestion of offering labor and land is an interesting one, and I have no problem with it on a moral level. However, instead of gifting such to the company, I'd recommend loaning it to them. That way, the company would have more of an incentive to follow through on its promise to readjust its corporate priorities - if they fail to do so, they forefeit the use of the land and/or labor.

Re: Should price fixing be legal? Why or why not

Stephen Adkins — Wed, 20 Jul 2011 21:13:22 GMT

I don't think I qualify to answer for the cognoscenti, but I would say, briefly, that yes it is moral for them to do that.

It may strike some people as a callous point of view, but one could ask those people on what alternative grounds they would prefer allocating the drug. If they say "to those who really need it, as opposed to those who can pay the most for it," obviously there is no way for an outsider to be able to tell who "really" needs or deserves something; value scales are not subject to measurement, and anyway, ability to pay the most (or of finding others to help one pay) is the only non-arbitrary way of coming close to that standard.

Pharmaceutical companies can't make demand curves inelastic; an inelastic demand curve is a reflection of the relative scarcity of the commodity. The higher price is, of course, a boon to the owner of the commodity, but the point is that it also economizes that commodity toward those who most urgently desire it, as well as attracting further production of that commodity.

In short, yes it's moral, and the alternative would be a political process in which somebody in power arbitrarily chooses who lives and who dies.

Re: Should price fixing be legal? Why or why not

Caley McKibbin — Wed, 20 Jul 2011 21:01:37 GMT

All prices are "fixed". You own it, you choose what price to sell it at.

Re: Should price fixing be legal? Why or why not

David Olifant — Wed, 20 Jul 2011 20:46:14 GMT

I am reading Man, Economy, and State. I just read the chapter on cartels and monopoly. I fully agree with the line of reasoning that producers, even if in cooperation with other producers can withold goods or decrease production in order to maximize income where the demand curve is inelastic. Makes perfect sense. Nothing immoral. No more immoral than trying to maximize the wages for your labor.

But what about the situation where, for example, a pharmaceutical company is the only source for a life saving drug during an epidemic, or even just during the regular modest incidence of a fatal illness. The families/patients are likely to have getting the drug pretty high on their priority list, preferring to pay a lot to avoid the "disutility" of death. Is it moral for the producers to just use the inelasticity and jack up the price maximizing total income until the price becomes so high that the curve becomes elastic in that price range, and people are willing to die, or let grandma die, rather than pay the price?

I would not suggest coersion upon the company, but might offer labor and land to them as a gift in order for them to readjust the corporate priorities, so to speak.

What does the cognoscenti say about this?

Forgive me, I am a libertarian newbie, and never took any economics before. But I am studying hard, need a little help. Thanks in advance.

Re: Should price fixing be legal? Why or why not

Phaedros — Mon, 06 Jun 2011 22:30:31 GMT

Isn't Pareto Efficiency an unscientific theory?

Re: Should price fixing be legal? Why or why not

Stephen Adkins — Mon, 06 Jun 2011 04:46:40 GMT

Price fixing is illegal because it results in a loss of Pareto efficiency due to a deadweight loss. That is the most precise answer you will ever get.

With that sort of objectivity, who could complain?

Re: Should price fixing be legal? Why or why not

John James — Mon, 06 Jun 2011 03:57:31 GMT

claudius:
Price fixing is illegal because it results in a loss of Pareto efficiency due to a deadweight loss. That is the most precise answer you will ever get.

...Too bad it's a false one.

Re: Should price fixing be legal? Why or why not

claudius — Mon, 06 Jun 2011 03:43:47 GMT

Price fixing is illegal because it results in a loss of Pareto efficiency due to a deadweight loss. That is the most precise answer you will ever get.

Re: Should price fixing be legal? Why or why not

z1235 — Sun, 05 Jun 2011 14:38:15 GMT

Other posts answered the OP nicely. I just wanted to add one more angle. Like most other socialist fallacies, the common perception about "price fixing" also stems from objectivity of values. There is presumably an objective value (price) of X (mostly related to labor theory of value) which greedy capitalists (through marketing, lying, cheating, blackmail, or collusion) sell for Y(>X) which is how profit gets created. Therefore, we need the good government to somehow control this "unfettered" profit creation and protect the gullible customers and exploited workers from the unsatiable capitalists' greed.

Once a socialist is taught about the subjectivity of values and the inherent wealth creation power of each and every voluntary exchange (both sides are better off), there is no looking back.

Re: Should price fixing be legal? Why or why not

Autolykos — Sun, 05 Jun 2011 14:10:03 GMT

Stephen Adkins:
The way capitalism is supposed to work is that competing firms drive down price, benefiting consumers. However, if these firms wise up and decide to raise their prices and reduce output, then the consumers are robbed of the price they would be able to obtain in a free market. Thus, we have an FBI division devoted to this and other acts of "economic conspiracy."

That's like saying that, if I bought a house for $100,000, but later can only sell it for $75,000, I was somehow robbed of $25,000. How does that follow?

To be honest, I've lately been shying away from using the word "market" because it implies these nice, tidy, independent "silos" of economic activity. In reality, however, it's all interconnected. Substitutes and complements abound. Any price-fixing or other collusion will have economic effects outside of their specific "market". This makes it all the more difficult to sustain a collusive agreement.

Re: Should price fixing be legal? Why or why not

Nielsio — Sun, 05 Jun 2011 10:52:33 GMT

Monopoly and Competition (by Murray N. Rothbard)

(Please visit the site to view this media)