January 26, 2005, 8:34 am
As a follow-on to the issues I raised in this post about the FDA making our risk-reward choices for us, comes this tongue-in-cheek suggestions from Café Hayek: Lets start the FCA, the Federal Car Administration, to approve cars for consumer use:
Choices would be few. Because of the high costs of the approval process, only cars that appealed to large numbers of consumers would receive attention from the manufacturers. On the plus side, the cars that did survive the process would be very safe and very good cars. They'd have to be. Manufacturers would want to reduce the odds of failure to avoid a ten year approval process that resulted in rejection.
It would be great, assuming the bureaucrats in Washington would make exactly the same choices that you would. In other words, it would be great if we all wanted to drive identical Ford Taurus's.
If you think this suggestion is just ridiculous humor, ask yourself whether this is what Ralph Nader has been after all along.
January 23, 2005, 9:54 am
Café Hayek has a good post on pricing and marginal cost:
Economists: loose your devotion to marginal-cost pricing. The best prices are not necessarily those that equal marginal cost. Prices above marginal cost help convey important information "“ namely, information about the value of the capital invested that makes provision of the good or service possible in the first place. This information, in turn, is important to entrepreneurs searching for profitable places to invest their money and energies.
This article is particularly helpful in the context of pharmaceutical cost regulation. Activists of the socialist/progressive bent consider any pricing above marginal cost to be evidence of monopoly, market failure, rapacious greed or all of the above -- but in any case a call for government action. This article helps reinforce the case of why pricing above marginal cost is not necessarily a market "failure". In the case of US Pharmaceutical pricing, drug pricing today is evidence of market failure only if one wishes to see the market fail to develop any new drugs in the future.
