I’ll see what I can do.
:EDIT:
Something to recognize is, the unfortunate reality is, there may very well be no use in having a product that is simply sold under two different brands at different prices. You’re right in that competition is what improves quality and lowers price, making us all wealthier. The market picks the superior product and the inferior one disappears (and frees up those resources to go to more desired uses.)
Now in a free market, it’s entirely possible for two identical products to be sold side by side, and have one sell better, even at a higher price. In fact, it could even be an inferior model, and still sell better at a higher price…as human beings take many things into consideration (even unconsciously) when purchasing. Packaging makes a huge difference. Perhaps the higher priced company has found a more effective way of appealing to the customer. Perhaps there is a lot of brand loyalty at work…meaning people know the brand, they trust it, and they are willing to pay a premium for that “peace of mind”…or possibly just because “these guys always take good care of us” and they feel that purchasing from the company is their way of showing their gratitude and maintaining a relationship. Or, possibly, the higher priced company just has better marketing, and more people know about their brand of the product.
Or one more possibility is there is actually a market for the two price points. As I mentioned here, Tim Harford brings up various examples of how even the same company can sell virtually the same product at different prices to maximize on price sensitivity. (Check that post for links with details). But basically, it could be the same case here, just that two different companies have developed to meet those different price point demands (i.e. one accomodates the “rich folk” (i.e. the people willing to pay more) and the other accomodates those more sensitive to price (i.e. those who are always looking for the best deal).)
So, there are many reasons why two different brands with two different price points for the exact same product could legitimately exist. That being said, you mentioned a few times that you were really concerned with this specific case. In this particular area (pharmaceuticals), it may very well be illegitimate reasons that the two brands exist. As you mentioned, this industry is rife with IP protections (something I mentioned recently here) as well as third party payers. It is entirely possible that the higher priced brand only exists due to one or both of these government interventions. Most likely, it is the latter…people simply aren’t paying for the product themselves, so they simply don’t care what it costs and won’t shop around. In essence, everyone is in the “rich folk” category where their price sensitivity is very low, because they personally aren’t feeling the cost (at least not in any way that they can discern.)
That may very well be the only reason the higher priced brand hasn’t disappeared. Indeed, when John Stossel did a special on the industry he discovered how there could be as much as a 40-100% price difference in the exact same brand of the exact same product…as in, absolutely no difference…in two different pharmacies, located only blocks away from each other. I’m not positive it was in that special where he mentioned it, but I recall him talking about how he was astounded to find this to be the case, and he recounted how in another report he did on bargain hunters or something like that, they literally followed people from store to store to store looking for the absolute lowest price of everything. He mentioned how they followed one woman to something like 4 or 5 different stores to ultimately save three cents on a can of peas. This just doesn’t happen in the pharmaceutical industry because the customer is just not the one paying for it.
Now, as for the question at hand…how do you make the case that choice is a good thing, even when it’s the same product priced at different levels. This will not be very clean and neat, because for one, the bottom line answer is not scientific in the economic sense. As you mentioned, it’s more of a psychology answer. People will voluntarily choose to pay more when they know they can pay less essentially for psychological reasons. (It makes them feel higher status, it gives them a sense of mental tranquilty and safety that their product is just a little bit better (why else would it cost me more, right?) or they feel a loyalty to the brand, and are simply paying more because of the “relationship” they have.
So you can’t really get an economic answer there…except to appeal to the a priori understanding that if a person freely chooses one thing over another, he prefers that one condition over the other. And personal preference trumps everything. A farmer could very well decide to farm corn in a field where he could be growing wheat and making more money…simply because he likes farming corn more. It’s his choice. Obviously the joy of farming corn is more valuable to him than the money he would get from the wheat.
And if you really do want to give the economic answer as to why this is good, you have to make the argument that if something is legitimately turning a profit, it by definition means that the market (i.e. people in general) are better off. For one thing, this is a hard enough case to make to anti-capitalists who see profit as “evil” and “exploitative”. But for another, it’s even more messy in this case because this may very well be a situation in which the profit is not legitimate…that is, the company is only able to turn that profit because of some kind of intervention in the market. So you can’t cleanly make the “profit is good” argument…because it isn’t always true, and that’s probably the case in this situation…so you’ve got more explaining to do.
So I’m not completely sure of the best way to proceed in the paper because I’m don’t know the details of the assignment, or even what class it is for. These details would largely determine what direction you can take, and what kind of freedom you have to make different arguments and focus on different things.
Ideally you could make the full argument I outlined here, but I doubt that’s feasible for this class or this assignment. But I could be wrong. As for resources going into these things, interestingly enough, Free to Choose might be a good one for the general argument of choice being a good thing.
I hear what you’re saying about “They are just cheating the people who don’t know better. Government should release giant public service announcements educating the public or government should induce a price ceiling on the drug, or government should remove brand name form the shelves.” The counter argument to that is twofold. One, as I mentioned before…they’re not cheating anyone…those people aren’t the ones paying for it. The big bad insurance companies are.
That’s the whole point. It’s not that they don’t know any better. It’s that they don’t care. And two, think about it…when you go to get work done on your car…do you know everything about how it works and what it needs and the typical prices for various parts and services? How in the world do you know if you’re paying more for some part when you could get the exact same part from the exact same factory for a lower price somewhere else? Why don’t we have government in there regulating prices for car parts? What about at the grocery store? Why is there not a government mandated price for that can of peas? In this store it’s $X…but in that store down the street, it’s $Y. IT’S THE SAME CAN! In fact the delivery truck goes straight from this store to that one and delivers the SAME PALLETS. That one store is just TAKING ADVANTAGE OF PEOPLE WHO DON’T KNOW BETTER.
Why don’t we have government mandated prices on everything? After all, that’s the only way to make sure people aren’t be “taken advantage of”.
And of course, there are plenty of economic resources to explain why price fixing is harmful. Economics in One Lesson provides great arguments. You could surely find them in basic economic textbooks as well. (Maybe not all, but plenty).
That’s is one way to do it. You could turn it into an argument about the economic viability of price controls. Other resources on this would be Thomas Sowell’s Basic Economics and Applied Economics. The latter is a great text extrapolating the need to think past “stage 1”…much like Bastiat/Hazlitt’s point about “seen and unseen”. It might help you form arguments in the realm of “there are other consequences than just the outcome you think you’re creating with mandates.”
This is actually probably the most effective way to deal with the arguments you’re anticipating. You’re right in that most of the available counter arguments will not appeal to such unthinking minds, but I think this one is probably the best bet.
I’ll edit again if I think of something else.