Help me with an analogy

I got into an argument over prop 79 with a coworker today. He claims that because McDonald's can negotatiate better deals with beef producers due to its size, the residents of the state of California should be able to do the same. We're not talking about MediCal or poor people here, but all California residnets. He assumes that bigger is always better when it comes to negotiating.

Here's the scenario: the government decides to issue drug discount cards to all California residents. The state then goes and negotiates with drug companies to try to get better prices for the people with the discount cards. Some companies decide to participate, some companies won't. He argues that companies will participate because Californians would choose to use companies covered by the card assuming the prices were lower.

Unfortunately, try as I might, I couldn't get him away from the McDonald's analogy, even by saying the government doesn't control the buying habits of Californians. He thinks that it would be good for California to have such a program. He did acknowledge that it was likely that if it was successful all other states would start doing the same thing, though he wouldn't admit that the end result would be exactly the same prices.

Can someone come up with a decent analogy that will help me convince him that government-run discount card programs are at best useless, and that such "voluntary" programs can't even work in the first place?

BTW, I just went and told him I agreed with him and we should have discount cards for cars as well. His reply was only that there's sufficient competition among car makers, so I think that it would not be hard to convince him that creating more competition among drug makers would be better.

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Any discount card program

Any discount card program would have to be funded with stolen loot, i.e. tax money, and is therefore illegtimate no matter what "favorable competition" results. So all you have to do is persuade your friend to be an ancap. :wall:

The hole in the idea is the

The hole in the idea is the credibility of the threat to take away your business.

McDonald's to beef producer: sell me your beef cheaply or I will not buy it. I can buy cheap meat-like substances without your cooperation.

State to DrugCo: sell me your drug cheaply or I will, uh, buy it expensively. I get it elsewhere, due to patents and limited supplies. I just allow my citizens to pay your high prices directly to you if you won't sell to me cheaply.

What really happens, of course, is that the state says "sell me your drugs for a large perpetual profit, just enough cheaper that I can get reelected, in return for stifling the competition that you'd otherwise have."

Sean, The buying power for


The buying power for non-generic prescription drugs is already in place, with both government and private health insurance drug plans combining to produce uninsured prices that are even higher than a monopolist supplier would charge consumers that individually faced the full price. Discount cards would just be more of the same. A discount doesn't accomplish anything without controlling the base price which is discounted from. To the extent that it is successful in reducing the prospects for future drug company profits, fewer new drugs will be developed.

Comparing California with Canada, the key is cross-price effects. Canada can negotiate low prices if and only if neither the negotiated prices nor the actual product leak into the US. If a drug company can enforce an isolated market, it will negotiate. California cannot keep its discount prices secret, so other states will demand similar discounts. California may be big, but not big enough compared to the US as a whole.

Regards, Don


Solution: expropriation!

Seriously, Dean Baker on MaxSpeak iirc not long ago gave some interesting arguments about superfluous nature of patents owned by private drug companies in medical research, whose main purpose anyway is to reap profits from the distribution of the results of public research.

The comments are good too.

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