Demand is dependent on the frequency of a condition in the population. This number, for most conditions, is generally known. Thus, the equilibrium point can be determined that would deliver the cost recovery and markup pharma companies seek, without allowing costs to escalate to gouging levels. The problem is that once the monopoly has been granted there are no serious cost controls beyond market controls.

There are two problems with this. The first is that without cost controls, it is difficult to improve bargaining power. First, buyers have little bargaining power because most buyers -- even insurance companies -- lack size to bargain over prices. Only Medicare and Medicaid have the size to drive prices down, because pharma companies are dependent on their money even with the monopoly. The second is that there is information asymmetry, which reduces the bargaining power of buyers. Again, only the largest and most sophisticated...
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