A fellow Puneri citizen sent out this tweet yesterday:
It was hard not to be snarky, and I didn’t even bother trying to resist:
But in my day job, I try to be an economist, and so I have questions. Just two of them, and they’re fairly simple ones. Here they are:
- He (or SII) was free to set the price, correct? Free market economics: let the seller decide the price, and let the buyer decide if she wants to buy at that price.
So the price now stands reduced by a whopping 25%. Does that mean that it was set too high in the first place?
That is, let us assume that SII is able to increase capacity expansion at a price of 300 per dose. Also assume that it can make a normal or “super” profit at this price – then was 400 not too high?
If we assume that he was going to earn an extra 100 rupees per vaccine sold, and that he was going to sell say 200 million vaccines to the states, that’s 200 million into 100 rupees.1
I don’t want to do the math, but were we ok with at least that much “extra” money going into the Poonawalla coffers until yesterday?
If yes, why?
- Unless, of course, that was not the case, and capacity expansion will suffer at a price of 300. A raise in the minimum wage will mean switched-off air-conditioning, correct? Well, in that case, is it not our moral duty to ask him to take the price back up to 400? Because if the opportunity cost of his philanthropy is reduced capacity expansion, isn’t that worse?
(By the way, all this is taking the assumption that SII “needs” the proceeds from the sale of this one vaccine alone to fund capacity expansion. That may or may not be true. And this also assumes that this is the only vaccine that SII will be producing and selling, which is obviously not true. Even in this “best-case” scenario, my questions hold up – if we do a full reckoning, they become even more important!)
If it is the first point above, us economists must explain why we think it is ok for those 100 rupees (per dose) to go into SII’s coffers.
If it is the latter, there ought to be a stream of op-eds beseeching Mr. Poonawalla to roll back his offer, for that would be truly philanthropic.
Which will it be?
And I know I said only two questions, but forgive me my greed, and let me ask one more: what is the definition of “transparent pricing”?
- Where do I get that number 200 million from? Who knows? I assumed that for the 960 million people in total who become/continue to be eligible on the 1st of May, he gets to sell only 200 million doses to the states. And yes, I am assuming only a single dose for these 200 million. Since nobody knows what the quantities are actually going to be, this is as reasonable an assumption as any other. If anything, this is a very conservative estimate. No?[↩]