More Economics of Neuticles

It occurred to me last night that neuticles also provide a good example of a topic I was having trouble getting across in managerial economics on Monday - that a monopolist might lose money.

Students have a lot of trouble with the idea of monopolists that don't make profits - out in the "real world" the naive view is that monopoly is akin to a right to print money. But, it's hard to see that this isn't the case because spotting the absence of something is always hard.

Neuticles are a good example of this, because the product exists for dogs but not for humans. Why is that so?

The forces of free entry and exit tend to push prices to the level of average total cost - the ultimate condition is known to economists as zero profits. Free entry pushes prices down towards average total costs (as additional producers reduce the ability of existing firms to continue to charge high prices). Free exit pushes prices up towards average total costs (as producers drop out of the market, it makes the remaining producers more exclusive). Monopoly often results when something interferes with free entry. But typically, there is nothing interfering with free exit, and it is possible for this process to continue until the last firm exits and an industry winks out of existence like a black hole (for example, there is no market for tasters to tell if a rich person's food is poisoned).

Which brings us to neuticles. I don't know that the producer of neuticles is a monopoly. What I do know is that one or more firms exist in this industry, so free entry and exit are pushing firms in this industry towards zero profits. I do know that there are no producers of neuticles for humans, and there appears to be no underground market for them either.

Now, bear with me for a moment - I think the forces of free entry are still working in the market for human neuticles. And now recall that this will tend to force prices down towards average total cost. The fact that I don't see this doesn't mean it's wrong - rather, it tells me that price is already below average total cost and that free entry will take this industry in the wrong direction ... so it isn't happening.

A person who is not experienced in economics may jump at the idea that the FDA doesn't permit neuticles to be sold in the U.S. This is sorta' true, but it misses the point. What the FDA in fact does is set the hurdles that a new (medical) product must surpass in order to reach the market, and in the wake of the silicone implant controversy of the 1990s these hurdles are currently very high. From the perspective of managerial economics, those hurdles are fixed costs, and the average fixed costs of spreading them across your production can be a significant component of your average total costs.

So, what is going on in the market for neuticles is that: 1) canine neuticles are unregulated and the forces of free entry and exit have left one or more producers in the industry, and 2) human neuticles are regulated and this has pushed average total cost above the level at which even a monopolist could make profits.

My original post on neuticles is immediately prior to this post.

Comments

[Gregg Miller]

Neuticles are not for humans for several reasons. First, to acquire FDA approval it takes untold millions and years of study to meet FDA requirements. Secondly, there are about 8,000 cases where men need a testicular implant and since the demand is so low no company wants to create an implant- due to the rigid FDA requirements.
Neuticles are a monopoly because of patents granted by the Federal government. The product never igzisted before Gregg Miller invented it. So- if anyone attempts to come out with a testicular implant for pets they will be prosecuted and put out of business. Stealing is stealing and Neuticles will do whatever is necessary to protect its product, name and the market it created.

[Dave Tufte]

Well ... how's that for "from the horse's mouth" or ... um ... er ... "the dog's ... " well ... you know.

I have no complaints with the points made here. Let me just say that unpatented neuticle-like things existed as early as 1991.

[Gregg Miller]

Dave Tufte: Like things? Like marbles? Like steel balls? Like large beads? These improvised items caused rejection, infection and were inhumane. Neuticles are scientifically developed. The material, the implantation process- the post operative care process. Neuticles are an exact replication of the pets testicles in size, shape, weight and feel. The patented implantation procedure assures a natural placement without risk of harm to the pet.Nearly $500,000 was spent to develope Neuticles to be 100% safe. Marbles, beads
and steal ball use are as barbaric and inhumane as the tradional form of neutering
which emasculates the pet.

It continues to peak my interest.