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Now, while monopolization might be the best-known way in which asymmetries of bargaining power can exist between buyers and sellers, it’s not the only one. In much the same way that companies can exploit their monopoly status to overcharge their customers – taking advantage of inflexibilities in the supply side of the equation – they can also find ways of overcharging their customers by taking advantage of inflexibilities in the demand side of the equation. If there’s a particular good or service that customers feel they have to have, and for which their demand accordingly remains consistently high regardless of how expensive it gets – what economists refer to as price inelasticity of demand – it can open up the possibility for sellers to raise the price far beyond what they’d otherwise be able to charge. Mind you, this won’t necessarily be a problem under normal market conditions, since competition between sellers will generally keep prices down – but in circumstances where the space for such competition is constrained in some way, it can produce similar effects to monopoly pricing even if the sellers aren’t actually monopolies themselves, simply because the urgency of customers’ needs makes it so they might as well be monopolies.

So for instance, imagine if you found yourself in some emergency situation – like, say, your house was burning down – and there was no such thing as a public fire department, only private fire brigades that roved around town at random. (Let’s also assume for the sake of this example that you’ve just moved in, so you haven’t already arranged for fire protection or insurance in advance.) As soon as one of these private fire brigades arrived at your burning house, it would be able to charge you practically however much it wanted to put the fire out, even up to the full value of the damaged house, and you’d have no choice but to pay, since your only alternative would be to lose everything. You wouldn’t have time to haggle over the price or shop around for a better deal, since your house would be burning away by the second, and for all you know the second-closest fire brigade might be stuck in traffic and unable to reach you in time to save it. You’d just have to pay whatever price the fire brigade named, because your need for its services would be completely inelastic.

It might sound like a far-fetched example, but things like this actually used to happen fairly often back before the idea of public fire departments became widespread. Marcus Licinius Crassus of ancient Rome, for instance – one of the richest men in history – notoriously built a large part of his fortune by exploiting exactly these kinds of situations:

The first ever Roman fire brigade was created by Crassus. Fires were almost a daily occurrence in Rome, and Crassus took advantage of the fact that Rome had no fire department, by creating his own brigade—500 men strong—which rushed to burning buildings at the first cry of alarm. Upon arriving at the scene, however, the firefighters did nothing while Crassus offered to buy the burning building from the distressed property owner, at a miserable price. If the owner agreed to sell the property, his men would put out the fire; if the owner refused, then they would simply let the structure burn to the ground. After buying many properties this way, he rebuilt them, and often leased the properties to their original owners or new tenants.

Two thousand years later, we’ve solved this problem by opting for public fire departments over private ones – but even now, attempts are sometimes made to switch from a universal public model to one based on individual customer payments, and the results have predictably been less than ideal (as in the case of a Tennessee area that adopted a “No Pay, No Spray” policy, which resulted in firefighters standing idly by while a family’s house burned down – with their pets still inside – because they hadn’t paid for firefighting services in advance).

Firefighting isn’t the only area in which this kind of unequal bargaining power can come into play, either. Another example that might immediately come to mind when you hear “unequal bargaining power” is labor. We already discussed earlier how such power asymmetries can force workers to accept horribly one-sided job offers even if they don’t really want to, due simply to their lack of better options. But that discussion framed the issue mostly in terms of supply – i.e. the lack of employers offering good jobs. We could just as easily frame it in terms of demand – i.e. how much the workers need those jobs in the first place. If the workers are independently wealthy and comfortable enough that they don’t truly need to accept any job, their demand for work will accordingly be highly elastic – so employers will have to offer genuinely high-quality terms of employment if they want to hire them. On the other hand, if the workers are utterly broke and desperate, their demand for work will be highly inelastic – so they’ll be a lot more inclined to accept any job they’re offered, even if the pay and working conditions are terrible, simply because they’ll have to do so in order to survive.

In a similar vein, another high-stakes area where demand inelasticity can be a major factor is healthcare. If you’re suddenly struck with an acute injury or some other urgent medical problem that requires immediate attention, you probably won’t have the luxury of being able to shop around for the best price or hold out for a better deal if no affordable options are immediately available. Your need for treatment – especially if your issue is life-threatening – will be unequivocally inelastic – which means that your only option under our current privatized healthcare system will be to simply get yourself to the nearest hospital or doctor’s office (which might be the only one nearby if you live in a rural area), cross your fingers that your health insurance will cover whatever treatment you might need (if you’re lucky enough to even have health insurance at all), and then only find out after the fact what the price of that treatment actually was and how much of it you’ll have to pay yourself. Maybe it’ll turn out that the cost is so high that it completely bankrupts you – in fact, this outcome is far from uncommon; about two-thirds of bankruptcies in the US are due to medical bills (and of those, about four-fifths are cases in which the patients have insurance, but are bankrupted anyway due to the combination of co-payments, deductibles, uncovered services, and in some cases becoming so sick that they lose their job and their insurance along with it). But when the only alternative is death or permanent disability, it’s not hard to see why most people simply pay whatever their medical bills end up costing them, even if it costs them everything they have. “Your money or your life” doesn’t really seem to have a hard upper bound.

Healthcare providers, of course, fully understand this situation – and as a result, they’re able to charge far more for their services than they’d be able to if the demand for those services were more elastic, as Ezra Klein notes:

Health care is an unusual product in that it is difficult, and sometimes impossible, for the customer to say “no.” In certain cases, the customer is passed out, or otherwise incapable of making decisions about her care, and the decisions are made by providers whose mandate is, correctly, to save lives rather than money.

In other cases, there is more time for loved ones to consider costs, but little emotional space to do so — no one wants to think there was something more they could have done to save their parent or child. It is not like buying a television, where you can easily comparison shop and walk out of the store, and even forgo the purchase if it’s too expensive. And imagine what you would pay for a television if the salesmen at Best Buy knew that you couldn’t leave without making a purchase.

“In my view, health is a business in the United States in quite a different way than it is elsewhere,” says Tom Sackville, who served in Margaret Thatcher’s government and now directs the [International Federation of Health Plans]. “It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

The result is that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high. Two of the five most profitable industries in the United States — the pharmaceuticals industry and the medical device industry — sell health care. With margins of almost 20 percent, they beat out even the financial sector for sheer profitability.

And because American healthcare providers do charge so much more than those in other advanced industrial countries (where healthcare is paid for by government), the upshot is that we Americans end up paying roughly twice as much for our healthcare as those other countries do, while receiving roughly the same outcomes. So what could we be doing to improve our situation here? Well, the most obvious answer is that we could simply switch to doing what all those other countries are doing – have our healthcare universally paid for as a public service, in the same way that we have our fire departments paid for as a public service. This wouldn’t necessarily mean that the government would have to directly hire all the doctors and provide the medical services itself, as in the UK; it could also mean that it allows all the doctors and hospitals to continue operating in the private sector, and simply provides everyone with universal health insurance to pay for their services, as in Canada. Or it could mean some other variation still; every advanced industrial country besides the US has its own unique way of providing universal healthcare to citizens. What they’ve all recognized, though, is that having government involved in the provision of healthcare allows them to keep their citizens healthy more cheaply and efficiently than leaving everything to the private sector, simply as a matter of basic economics.

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