Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

Read more...

Latest Comments

  • Anonymous said More
    Great explanation for the relationship... Saturday, 19 June 2021
  • Anonymous said More
    nice analysis, thanks Wednesday, 21 October 2020
  • Anonymous said More
    The fact that CBD from marijuana is... Sunday, 14 June 2020
  • Anonymous said More
    This was excellent and extremely... Tuesday, 21 April 2020
  • Anonymous said More
    Well written. Well constructed. Tuesday, 13 August 2019

A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

 

In Part 1 of this analysis, I provided a brief description of the Microbial Resistance Game, and I described the various pathways of microbial resistance to antibiotics.

In this section I describe the players involved in the Antimicrobial Resistance Game (as illustrated in Figure 1), together with their incentives.

Figure 1

 

Herbicide (& Pesticide) Manufacturers

Herbicide (& Pesticide) Manufacturers manufacture and sell herbicides to Plant Farmers, who use them to kill the weeds that compete with their crops for resources.

Herbicide (& Pesticide) Manufacturers want to sell as much herbicide as possible at the highest price possible each year into the future.

Herbicide (& Pesticide) Manufacturers are better off when Plant Farmers do not undertake good weed management practices (see section on Plant Farmers for discussion of good weed management practices), to the extent that

•  Farmers use more herbicide than they should;

•  Farmers use more herbicide in lieu of also using mechanical methods of weed control (because it’s cheaper or easier);

•  Farmers use more herbicide in response to the appearance of herbicide-resistant weeds.

There is another possible response by Herbicide (& Pesticide) Manufacturers to the Plant Farmers’ herbicide-resistant weed problem than simply kicking back and generating greater profits from increased sales of herbicides. Dow AgroSciences has developed new genetically engineered versions of corn and soybeans that are resistance to Dow’s Enlist Duo herbicide. As Carey Gillam reports in “EPA expands areas of approved use for Dow's Enlist Duo”:

Enlist Duo was developed by Dow AgroSciences, a unit of Dow Chemical, as an answer to severe weed resistance problems that are limiting crop production around the country.



Enlist Duo is designed to be used with genetically engineered corn and soybeans, which have been altered to tolerate being sprayed with Enlist Duo. The specialty crops and the herbicide are to be sold as a branded "Enlist Weed Control System."



Enlist Duo combines an herbicide component known as 2,4-D with glyphosate, the active ingredient in Monsanto's Roundup.

So, how long will it take for Enlist Duo-resistant weeds to become just as out-of-control as the current glyphosate-resistant weeds?

 

Plant Farmers

Plant Farmers want to minimize the total (money + time + effort) of growing crops each year into the future. Plant Farmers use herbicides to kill the weeds that compete with their crops. Glyphosate has become one of the most widely used herbicides because it is cheap and effective. As Chris Boerboom and Michael Owen describe it in “Facts About Glyphosate-Resistant Weeds”:

…[G]lyphosate provides broad-spectrum, low-cost weed control with excellent crop safety. It is better than many other herbicides at controlling larger weeds, has no soil activity (allowing for flexible crop rotations), and has low environmental and human health risks. In several respects, glyphosate and Roundup Ready® crops have simplified weed management. Even before Roundup Ready® crops were introduced, glyphosate was (and continues to be) a valuable herbicide in no-till cropping systems, and saves soil, fuel, and labor. No other single herbicide has provided these benefits to U.S. corn and soybean growers.

Boarboom and Owen go on to state that due to the widespread use of glyphosate, the number of different types of weeds that have become resistant to the herbicide “is increasing at an alarming rate.” Farmers have responded to the increasing incidence of glyphosate-resistant weeds either by simply user more frequent applications of glyphosate or by mixing glyphosate with other herbicides, both of which increase costs of farming.

For some weed species, glyphosate resistance may not be as serious because a tank mix partner could control the glyphosate-resistant weed. Even so, adding a second herbicide will be less convenient, increase costs, increase the risk of crop injury, and may limit the window of application.

Let’s consider the situation facing Plant Farmers:

1.  In “Herbicide resistant weeds,” Jeff L. Gunsolus provides a discussion of good weed management practices that minimize the development of herbicide-resistant weeds. Here is a summary of his recommendations:

a.  Use as little herbicide as possible;

b.  Use different herbicides so as to rotate the method of attacking weeds;

c.  Use a mix of different herbicides;

d. Rotate crops and crop varieties;

e. Use both chemical and mechanical (e.g., rotary hoeing) weed control practices;

f.  Respond quickly to the appearance of new weeds; and

g. Clean farm equipment before moving it to new fields.

2.  The Boarboom and Owen information suggests that Plant Farmers are not utilizing good weed management (WM) practices to deal with their weeds. This suggests that weed management efforts that attempt to minimize weed resistance to herbicides are more costly (money + time + effort) than weed management efforts that do not attempt to minimize weed resistance to herbicides:

(A)     Cost(Good WM) > Cost(Bad WM)

3.  The Boarboom and Owen information also suggests that the costs of growing crops are higher when the portion of total weeds that is resistant (PR) to herbicides is higher:

(B)     Cost of Weeds = Cost of Weeds (PR), with Cost of Weeds'(·) > 0

4.         (A large portion of) the benefits associated with good weed management (WM) practices are realized during the following period (with discount factor β), when fewer resistant weeds are generated:

(C)     Net Benefits of Good WMt

                =  – Cost of Good WMt + β [CW(High PR)t+1 – CW(Low PR)t+1]

What this means is that good weed management entails generating higher costs of weed management during the current period, with the expectation of benefitting from lower costs of weed management in the future. To the extent that Plant Farmers have high rates of time preference (i.e., a dollar today is worth much more than a dollar tomorrow), they will tend to invest less in weed management practices.

5.  As the Boarboom and Owen information suggests, when the portion of resistant weeds is higher, Plant Farmers use more herbicide to kill the resistant weeds.

(D)     Herbicide = Herbicide(PR) , with Herbicide'(·) > 0

6.  The total social costs of using greater amounts of herbicides are greater than the total private costs; that is, Plant Farmers don’t bear all the costs they generate when they use excessive amounts of herbicides. In particular, the use of excess amounts of herbicides (i) increases the portion of resistant weeds that other Plant Farmers must then deal with, to the extent that the resistant weeds spread; (ii) increases bacterial resistance to antibiotics, which increases the costs to People of treating bacterial infections; and (iii) increases the amount of herbicides to which People are exposed.

(E)     Total Social Cost of Weed Management

   = Cost of Weed Management to Farmer

   + Cost of Spreading Weed Resistance to Other Farmers

   + Cost of Bacterial Resistance to People

   + Cost of Excess Herbicide Exposure to People

Given the existence of externalities in weed management practices (point 6), even if all Plant Farmers were to undertake good weed management practices, they would still be using too much herbicide from a social perspective. This would result in both premature weed resistance to herbicides (from a social perspective), as well as premature microbial resistance to antibiotics.

Even without the externality, Boarboom and Owen’s description of current weed management practices suggest that it’s cheaper and easier in the short run to use more herbicide in lieu of other weed management practices. Consequently, many Plant Farmers have used “too much” herbicide, thereby causing both (excessively) premature weed resistance to herbicides, as well as (excessively) premature microbial resistance to antibiotics.

However, assuming that the use of “too much” herbicide is the lowest cost means of producing crops, then no Plant Farmer individually has an incentive to deviate from this practice. Otherwise, he will incur greater costs than his rivals to bring crops to market; that is, he will suffer a cost disadvantage.

The most obvious way to induce Plant Farmers (jointly) to use less herbicide would be to raise the price of (e.g., tax) herbicide. However, Herbicide (& Pesticide) Manufacturers would resist any efforts to do this, as it would decrease their sales of herbicides.

An alternative response to the excessive use of herbicides by Plant Farmers has been the increasing demand by People for organic crops, which, presumably, entail the use of fewer harmful herbicides. Of course, the costs of raising organics are greater than the costs of raising non-organic crops. However People have shown that they value the organics enough to pay higher prices for them. In this case, then, Plant Farmers can deviate from their rivals by using the higher-cost farming practices associated with organics, but still generate a profit, by charging higher prices.

 

Brand Name Antibiotics Developers and Manufacturers

Brand Name Antibiotics Developers and Manufacturers are pharmaceutical companies that develop and sell antibiotics. These companies are profit maximizers; that is, they seek those drugs in which to invest, develop, and eventually manufacture and sell that will maximize their return on investment.

As previously mentioned, eventual resistance to any antibiotic is natural and inevitable, which means we cannot prevent diseases from becoming resistant to antibiotics altogether. As also previously mentioned, Spelberg et al indicate that the only solution to this problem is the perpetual development of new antibiotics to treat resistant strains. However, as also mentioned, and as Figure 2 aptly illustrates, there have been few new antibiotics in development during recent years. Spelberg et al refer to this decline in new drug development in the face of increasing resistance to existing antibiotics as a “microbial perfect storm.”

Figure 2

Source: Evoctec, “Antibiotics: Breaking Down the Cell Wall”

 

Spelberg et al describe clearly and concisely why pharmaceutical companies have foregone the development of new antibiotics in favor of other, more profitable therapeutics.

The cause of the decline of antibiotic development is multifactorial, but fundamentally, each factor relates to return on investment. Drug development, in general, is facing increasing challenges, given the high costs required, currently estimated to be $400–$800 million per approved agent. Unfortunately, antibiotics have a lower relative rate of return on investment than do other drugs. Antibiotics are short-course therapies that cure their target disease and, therefore, are typically taken for no more than 2 weeks. In contrast, chronic diseases are treated with noncurative therapies that suppress symptoms and are required to be taken for the life of the patient. Ironically, antibiotics are victims of their own success; they are less desirable to drug companies and venture capitalists because they are more successful than other drugs.



Another factor that weighs heavily as a disincentive for antibiotic development is the appropriate public health need to limit use of new, broad-spectrum antimicrobials. Antibiotics, alone among all classes of drugs, become less effective the more they are used. Therefore, thought leaders appropriately encourage restriction of the use of new, powerful antibiotics, and this inevitably negatively impacts sales. In direct contrast, when new drugs in other classes become available, their use may be encouraged by thought leaders.

Finally, an issue that is repeatedly cited by both pharmaceutical and biotechnology companies as a major deterrent for the development of antibiotics is the lack of available guidance documents from the FDA regarding which studies (e.g., placebo-controlled vs. noninferiority clinical trials) and evidence the agency considers to be acceptable to demonstrate the safety and efficacy of new anti-infective drugs

There have many reports documenting the problem of too few new antibiotics being developed, together with proposals for methods of incentivizing Brand Name Antibiotics Developers and Manufacturers to develop new antibiotics. And, as a result, there is currently legislation in the works, known as the 21st Century Cures Act, which addresses this and other healthcare-related problems.

Given the lack of investment incentive for Brand Name Antibiotics Developers and Manufacturers, it should be clear that providing them with financial incentives should top the list of recommended actions for addressing the problem. The ISDA study (mentioned in the section above “Brief Description of the Game”) provides a list of recommendations for encouraging new drug development, which do include various financial incentives:

IDSA’s investigation has revealed that the incentives most likely to spur R&D within major pharmaceutical companies include those that provide financial benefits prior to a drug’s approval (e.g., tax credits for R&D), commence at the time of approval (e.g., wild-card patent extension), reduce the costs of clinical trials (e.g., FDA flexibility concerning the evidence necessary to demonstrate safety and efficacy; NIAID-sponsored research to develop rapid diagnostics tests, etc.), and reduce companies’ risks (e.g., liability protections). R&D at smaller biotechnology companies also could be stimulated through statutory and administrative changes. Finally, new funding for critical federal public health programs, and public and private research efforts, would help to ensure progress as well as limit the public health impact of antibiotic resistance.

A notable recommendation included in this list is wild-card patent extensions. Spelberg et al provide further details on this recommendation, together with the controversy surrounding it:

One additional proposal, known as “transferable patent extensions” (also known as “wild card patent extensions”), would grant companies receiving FDA approval for a priority antibiotic an extension on patent time of 6 months to 2 years on another drug that the company markets. IDSA currently is not aggressively pursuing adoption of the transferable patent extension concept because of the extreme controversy that has been associated with this idea. However, of all of the potential solutions, transferable patent extensions are generally acknowledged by pharmaceutical companies to be, by far, the incentives most likely to successfully stimulate new antibiotic development. Although many fear the costs to society incurred by extending the patent on blockbuster drugs, such as atorvastatin, it is possible that a compromise could be reached by capping the earnings resulting from patent extension.

Opponents of transferable patent extensions have characterized the idea as a boondoggle for the pharmaceutical industry. What has been generally underappreciated in this controversy is the potential for newly developed antibiotics to mitigate the dramatic costs posed to society by antimicrobial resistance, estimated to be in the tens of billions of dollars annually. Indeed, an academic analysis of the transferable patent extension concept has indicated that it likely will result in a net savings of billions of dollars in health care costs by promoting the availability of antibiotics to fight costly multidrug- resistant infections.

Another of the obvious incentives to pharmaceutical companies for developing new antibiotics is that of extending patent lives. Regarding this recommendation, Spelberg et al note that Generic Antibiotics Manufacturers oppose the idea, since patent extensions would deter the Generics’ ability to enter the market with generic versions of any newly developed antibiotics.

It is perhaps not surprising that the most vocal critics of providing incentives to spur pharmaceutical R&D are generic drug manufacturers and their lobbyists. Generic drug manufacturers perceive that extension of patents will delay their ability to begin profiting from the sales of generic copies of those drugs. However, generic manufacturer criticism of patent extensions likely will prove to be short-sighted; if pharmaceutical companies do not discover, develop, and seek regulatory approval for new antibiotics, generic manufacturers will have no new antibiotics to manufacture as generics in the future, even as sales of old generic antibiotics decrease precipitously as a result of increasing antibiotic resistance. Furthermore, making cheaper generic versions of already existing drugs does not address the problem of rising drug resistance and the increasing incidence of pan-resistant, lethal infections; only innovative discovery of new antibiotics can address this problem.

 

Generic Antibiotics Manufacturers

Generic Antibiotics Manufacturers are pharmaceutical companies that develop generic versions of antibiotics that have been developed and sold by Brand Name Antibiotics Developers and Manufacturers. These companies are also profit maximizers, and their profits are higher when there are more antibiotics that have been developed by Brand Name Antibiotics Developers and Manufacturers that are off patent. So they too are suffering from the lack of new antibiotics currently in the pipeline. However, while they will benefit from any new developments that Brand Name Antibiotics Developers and Manufacturers undertake, they want any newly developed antibiotics (and any other patented drugs) to have as little patent protection as possible. With weaker patent protection, Generic Antibiotics Manufacturers have to wait less time after new brand name drugs have been developed to make generic versions to sell in the marketplace.

 

Animal Farmers

Animal Farmers seek to maximize the amount of saleable animal products they generate per unit of cost. The use of antibiotics by animal farmers increases animal mass and decreases disease and death. From Wikipedia:

Studies have shown that administering low doses of antibiotics in livestock feed improves growth rate, reduces mortality and morbidity, and improves reproductive performance…

The amount of antibiotics that Animal Farmers use is significant. From The Alliance for the Prudent Use of Antibiotics (APUA), “Science of Resistance: Antibiotics in Agriculture”:

It is estimated that, in the United States, the amount of antimicrobials administered to food animals is comparable to that used in humans. These antimicrobials are utilized largely to promote growth and prevent disease, thereby reducing production costs…

Most food animals in the US are exposed to antimicrobials in feed, water, or by injection at some point during their lives.

The case of Animal Farmers is parallel to that of Plant Farmers in pretty much all respects.

•  As with the use of herbicides by Plant Farmers, the use of antibiotics by Animal Farmers entails externalities: the use of antibiotics to raise animals decreases the effectiveness of using antibiotics to treat disease in People.

•  Due to this externality there is too much use of antibiotics from a social standpoint by Animal Farmers.

•  And yet, any Animal Farmers who chooses to deviate from the practice of using antibiotics to raise animals will suffer a cost disadvantage.

•  And similar to the Plant Farmers’ response to People’s objections to too much herbicide use by providing organics, Animal Farmers are responding to People’s objections to too much use of antibiotics by curbing their use in the raising of animals. Specifically, the WSJ reports the following articles relating to chicken farmers:

°  “Foster Farms to Curb Antibiotics Use in Its Chicken” (June 1, 2015)

°  “Tyson Joins the Flock on Curbing Antibiotics” (April 28, 2015)

°  “Pilgrim’s Expects 25% of Its Chicken Will Be Antibiotic-Free by 2019” (April 20, 2015)

Presumably, the costs of antibiotics-free chicken will be greater than the costs of chicken raised using antibiotics. Depending on People’s sensitivity to price, either antibiotics-free chicken will garner a higher price, and/or chicken raised using antibiotics will suffer a price drop.

Hot off the presses: The WSJ just reported, “FDA Clears Way for New Curbs on Antibiotics Given to Farm Animals:”

The Food and Drug Administration paved the way for new restrictions on antibiotics given to cows, chickens and other farm animals as the Obama administration pursues ways to fight the so-called superbugs that are growing increasingly resistant to the current arsenal of infection-fighting drugs.

The FDA on Tuesday issued a set of guidelines for veterinarians who will soon be responsible for prescribing antibiotics for animals destined for the dinner plate, marking a key step in ending the practice of distributing those drugs over the counter.

Any government restrictions on the use of antibiotics will end up increasing all Animal Farmers’ costs (equally). The announced action will increase social welfare by providing incentives for all Animal Farmers to reduce their use of antibiotics together, without putting any single Animal Farmer at a cost disadvantage relative to his competitors.

 

Fish Farmers

According to Wikipedia, 40% of global seafood produced in 2005 came from Fish Farmers:

Fish farming involves raising fish commercially in tanks or enclosures, usually for food... Worldwide, the most important fish species used in fish farming are carp, salmon, tilapia and catfish.

There is an increasing demand for fish and fish protein, which has resulted in widespread overfishing in wild fisheries, China holding 62 percent of the world's fish farming practice... The global returns for fish farming recorded by the FAO in 2008 totalled 33.8 million tonnes worth about $US 60 billion. In 2005, aquaculture represented 40% of the 157.5 million tons of seafood that was produced, meaning that it has become a critical part of our world's food source even though the industry is still technically in its 'infancy' and didn't really become well known until the 1970s. Because of this rise in aquaculture, there has been a rise in the per capita availability of seafood globally within the last few decades.

The Institute for Agriculture & Trade Policy, in “Antibiotics and Fish Farming,” indicates that “70 percent of seafood consumed in the United States is imported from other countries,” and that

... [U]nregulated use of antibiotics in fish farms overseas continues to skyrocket. In many countries exporting to the United States, farmed fish and shrimp are produced in crowded facilities with inadequate, or non-existent regulation of antibiotic use.

Like Plant Farmers and Animal Farmers, Fish Farmers seek to maximize the amount of fish they can sell per unit cost. The difference, perhaps, in the case Fish Farmers is that (many of) those farms are located in areas with polluted and/or unregulated environments. Without monitoring and/or regulation, and assuming that using antibiotics is the lowest-cost means of bringing fish to market, no one Fish Farmer has an incentive to unilaterally defect from the strategy of using antibiotics to raise fish.

 

Healthcare Providers

Healthcare Providers choose therapeutics to treat their patients. As I mentioned previously in the section on “Pathways to Resistance Through Prescription and Use by Healthcare Providers,” many Healthcare Providers misuse antibiotics by using them to treat patients with nonbacterial infections, either

(i)  due to the mistaken belief that their patients suffer from bacterial infections, and/or

(ii)  due to patient pressure to prescribe medication.

Advances in diagnostic technology that help Healthcare Providers determine the true causes of People’s illnesses should help reduce the misuse of antibiotics in the first case above, (i).

Increases in the general education and awareness of the problem involving resistance to antibiotics, among both Healthcare Providers and People, should help to reduce the incidence of misuse of antibiotics in the second case above, (ii).

 

People

People receive therapeutics from their Healthcare Providers to treat their illnesses. . As I mentioned previously in the section on “Pathways to Resistance Through Use by People,” improper use of antibiotics by People can speed the rate of resistance. As in the case of Healthcare Providers, increases in the general education and awareness of the problem involving resistance to antibiotics should help reduce the incidence of misuse of antibiotics in People, by motivating them to

•          Avoid eating plants, animals and fish that were raised using herbicides or antibiotics;

•          Take medications properly and/or as directed; and

•          Not pressure Healthcare Providers to prescribe improper uses of antibiotics.

 

More Blogs

Cannabis Cultivation: Seeds vs. Clones

26-09-2020 - Hits:2496 - Ruth Fisher - avatar Ruth Fisher

Cannabis plants are dioecious, that is, they are either male or female. Plant reproduction occurs naturally, when male plants pollinate female plants, causing female plants to produce seeds. New cannabis plants can thus be cultivated by collecting seeds from fertilized females and replanting them, or by buying seeds generated by...

Read more

Cannabis Cultivation: Indoor vs. Outdoor vs. Greenhouse

22-09-2020 - Hits:2183 - Ruth Fisher - avatar Ruth Fisher

There are three basic locales for growing cannabis: indoors, outdoors, or in greenhouses. Greenhouses enable growers to benefit from natural light, while also being able to strategically block out light to induce quicker flowering. Budget-friendly greenhouse operations are more subject natural climate variations, while higher-end greenhouses are more similar to...

Read more

Would the Endocannabinoid System Have Been Discovered Earlier without the Ban on…

10-06-2020 - Hits:1848 - Ruth Fisher - avatar Ruth Fisher

Cannabis was used medicinally in the Western world from the mid-1800s through 1940, even though doctors did not understand cannabis’s mechanisms of action. The Marijuana Tax At of 1937 Federally banned the use of cannabis in the US for either medical or recreational uses, and it restricted scientific studies of...

Read more

How Regulations Shape the Cannabis Industry

16-05-2020 - Hits:2723 - Ruth Fisher - avatar Ruth Fisher

  The cannabis industry is highly regulated, and the various regulations play a powerful role in shaping the structure, and thus outcome, of the industry. This analysis examines the following questions: How do cannabis market regulations shape market structure? Are the resulting outcomes favorable to suppliers and/or consumers? What are the pros and cons...

Read more

Cannabis Industry Rollouts: Lessons Learned from States’ Experiences

27-04-2020 - Hits:1944 - Ruth Fisher - avatar Ruth Fisher

Bart Schaneman from MJ Business Daily recently released, “2020 Cultivation Snapshot: U.S. Wholesale Marijuana Prices & Supply.” The information contained in the report helped cement certain insights I’ve had about the evolution of the cannabis market. Background info In addition to the myriad other laws and regulations, all states essentially have two...

Read more

A Data-Generating System: A Framework for Data Assessment

14-04-2020 - Hits:1215 - Ruth Fisher - avatar Ruth Fisher

Suppose I gave you, the Data Analyst, a dataset of information on sales of Ford automobiles, and suppose I told you to use that dataset to predict total national sales of Ford automobiles for next 12 months. What would you want to know about the data you were given? If you...

Read more

Hemp and CBD Market Supply

06-04-2020 - Hits:2279 - Ruth Fisher - avatar Ruth Fisher

The information in this post was compiled in an attempt to understand 2 issues: Does the cultivation of hemp differ depending on the hemp product supplied (fiber, seed, or flower)? Is the CBD produced from hemp (cannabis with ≤ 0.3% THC) identical to the CBD produced from marijuana (cannabis with > 0.3%...

Read more

Trends in Cannabis Patents Over Time

08-12-2019 - Hits:2505 - Ruth Fisher - avatar Ruth Fisher

Patent Counts by Year I searched the USPTO patent database for all patents for which the patent abstract contained any of the following terms: cannabis, cannabinoid, marijuana, tetrahydrocannabinoid, or cannabinol. My search yielded 914 patents. As seen in Figure 1, there were only a handful of cannabis patents each year until the...

Read more