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Suppose that there are 10000 people on group A and 10000 people on group B. Both groups are sick and want a pill developed for their sickness. Now suppose that a enterpreneur comes up with a plan to serve group A that makes him about even or nets him a profit of a scale of whatever is reasonable. Then the enterpreneour learns of group B. He might need to do the drug development all over again if they have a different disease. However if the pill that worked for As works also for Bs he might charge Bs as if he had to do the drug development all over again but actually just give them the pills ment for group A. If the general justification for pills to cost what they do is to cover the effort making them this kind of arrangement bypasses that. That is the enterprenour can charge group B a bigger price if he lies about the need to do additional research. On the other hand it might genuinely be the case that the A pills don't work. Thus there is a question of whether it is really required or not. The enterprenous migth end up collecting a fair price for 2 researches when he has infact done only 1. And that amount is very likely to be an unfair price for 1 research. That is if the information asymmetry about the production methods used (additional research or not) then Bs would not consent to the same prices (and possibly As too). That is for As it is presented that a pill costs 1/10000th of a research project. The same claim for Bs they would agree with the information asymmetry and disagree with it removed. That pills in general require research and that is why they cost what they cost is insufficent to guarantee decent prices. It needs to be infact this pill having used research for the argument to carry through. The error is similiar as if a company would buy a new hammer for every nail that needs to be hammered. I don't care how cheap you get the hammers if you just used one for all of them the costs would be way much lower. That is if you insist on buying "nail hammerings" where each nail hammering costs the same and the cost of the hammer is factored in it you are probably going to pay more than buying one project of 10000 or whatever amount nails hammered for a fixed negotiated price. In essense with the project price you guaranteed that you are paying for the hammer only once while you risk potentially paying for it twice or ten times if you insist on buying the product as "nail hammerings" (well you also have the chance that you end up paying for only half an hammer). I guess the bad cost-plus model would be to have a negotiated price for nails and agreeing that a hammer can be bough to nail them but not negotiating what the hammer can cost. The value-created argument would be that the price difference between nails and "nail hammering" would be the entitlement granted to those that own a hammer (so everybody get hammers!) or the "good that hammers create by existing". Being multiply charged for the hammer would be interpreted as enjoying from hammers to a greater degree without actually having one. It would seem absurd that hammers would entitle greater wealth transfers in the name of "nail hammerings" than what they are actually worth.