Monopsony theory of Single Payer One theory of how single payer/universal healthcare systems are less expensive than the US private insurance market is that each country functions as a monopsony: a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. For example, with drug pricing, a country can ultimately tell Pfizer, &quot;We don't want to pay more than X for your new drug. If you don't agree, you can take your business elsewhere&quot;, and Pfizer is forced to agree because otherwise they lose an entire market. I have two questions on this logic:

Pfizer is a global company, they sell to many countries, how can any single small country be considered a &quot;monopsony&quot; on Pfizer's products? . In a global marketplace, with many payers, it would seem that none of those payers individually can claim to have a monopsony. And this is especially true for small payers, such as Sweden, Norway, Denmark, New Zealand, which are individually a very small part of the global customer base. And this brings me to the next question, the flipside:

Why don't US health insurers have the same &quot;monopsony&quot; power? Why can't Aetna, which is bigger than many countries, tell Pfizer the same thing: &quot;We don't want to pay more than X for your new drug. If you don't agree, you can take your business elsewhere&quot;? How is their &quot;monopsony&quot; any less than Sweden's, which is a much smaller market?
If a firm cannot cover costs and make profit then it has no profit motive to develop and sell drug XYZ. So the profit motive is a &quot;cost plus&quot; model. The price must cover costs plus profit whether there is a single buyer or multiple buyers of the output goods.
If drug XYZ makes a net profit in a domestic market, and if there is a marginal profit in other global markets, then prices can be set lower in some parts of the global market and there is still an incentive to provide drug XYZ for marginal profits there.
Bottom line is price floors must be set by the market and/or government purchases if long term investments are to be recovered from future cash flows. This looks like cost plus pricing of output goods. Otherwise a firm that cannot recover costs from cash flows goes bankrupt and the assets transfer to another firm with less long term debt and then the cost can come down.