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Lumifer comments on Market Failure: Sugar-free Tums - Less Wrong
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You are focusing on the actions of the VCs. That isn't the failure. The failure was by the big players already in the market.
I'm theorizing that the VCs believed that the fact that the big companies did not make any such product proved there was no profitable demand for it, because the market worked. These are not miracle high-tech underwear; they could have been developed years ago. The belief that the market works demands some explanation why they weren't.
$46 a bottle is "the appropriate price"? The phrase is meaningless if it means "whatever price the market is selling it at", so don't use the phrase as if it had a normative aspect. Of course people sell it at some price. The market failure is that competition has not driven the cost down close to the cost of production. "Market failure" doesn't always mean "a failure to sell a product". In this case it means failure of competition to lower costs.
That doesn't look like a viable hypothesis because if it were true, such people would not be VCs at all.
Generally speaking, you seem to expect perfection in business agents. Clearly, this is not so in reality. "The market" is not each individual agent, it is the sum of them all. Moreover, the market works by self-correcting which implies that there are a LOT OF MISTAKES being made all the time. The market is successful because it provides negative feedback to those who make mistakes, so on the average it does what it does quite well, but it would be an error to think that each individual decision is optimal.
Nope. Reality is primary, theories are secondary. In real life the markets drive the price down to the cost of production only occasionally. If your theory says they should, it's the theory that needs to be adjusted.
In real life, you can find the $30 bottle available for $4.29. I don't know if that's exactly the cost of production, but it's low enough that we can stop talking about how this is a market failure because the product can only be sold at high prices.
Where?
I posted the link on this page already. Unless you're trying to insinuate that because the link doesn't work, the product was discontinued.
If so, you should have done a search, which would have found that the product was not discontinued and they just reorganized their site so that URLs now include the directory /products/: http://www.planetrx.com/products/sunmark-sugar-free-extra-strength-calcium-antacid-orange-creme-80-chewable-tablets
They are also available at Wal-Mart for $5.65. Here is a different brand for $3.49, and a different brand, different flavor for $6.40 for 100 tablets.
That statement makes no sense and has no support. What, you're imagining that I said that VCs think all profitable things are already being done? That is not what I said. What I said, which is true, is that VCs don't jump into established markets that already have huge dominant players.
"Close to", not "to". The difference is enormous--it's the difference between free market theory and Marxism.
The theory of the free market is that markets do so; failure to do so is called a failure of the market. It is a theoretical term, so saying "theories are secondary" is nonsense.
Restated:
Citation needed.
Unfortunately for you, what you actually said is easily visible a bit upthread. Let me refresh your memory:
The cost of production is basically an asymptotic limit in the long term. Whether it's "close to" or "to" is irrelevant, you are not going to get there anyway.
Oh, dear. Let us consider phlogiston. It is a theoretical term, isn't it?
The problem is that theories are useful only insofar they reflect reality. You can make your theory contort in various ways, but unless these contortions match the reality, they shouldn't be entertained.
To repeat myself, if your theory predicts something that does not happen (regardless of whether it uses "theoretical terms" or not), you need a better theory.