Posted by
JDComments on Saturday, January 13, 2007 12:34:59 PM
Monopsony is the flip side of monopoly- it is the case where there is only one buyer of a good or service. Economically it is just as destructive to the working of a freemarket in that it skews decisions and does not allow competition to decide the availability of products.
I bring this up because the Dems are trying to enact a law authorizing the Government to negotiate for drug prices [ see
article ] using the justification that it will be able to get them lowered due to their basically having a monopsony.
Their argument is of course valid, and thus potentially harmful to the working of the market. One dominant buyer can cause prices to be artificially low, just as one seller can cause them to be unnaturally high. Either scenario distorts the economic decision making , and results in inefficiencies and wrong choices.
While the harm of higher prices is easy to see, the danger of prices that are too low is more insidious in that it results in products never being brought to market at all. The result is that supply may be limited, and new products never developed at all.
Of course the Dems would dismiss all this for the opportunity to preen about getting lower drug prices for their constituencies, while trumpeting their triumph over "Big Pharm" as they like to call it. Lost in the shuffle will be the fact that the market will once again be constrained by government, and important products offering huge benefits may never be made available at all.