Sunday, January 17, 2010

You won't hear a Republican lecture about Free Trade...

When it comes to patent protections and lower the price of your perscriptions--as its not good for the pharmacutical industry...
 

The NYT reports that Johnson & Johnson paid kickbacks to a pharmacy company to get it to distribute its drugs for unauthorized uses to nursing home residents. This article would have benefited from some economic analysis.

This is the textbook response that would be predicted from government interference in a market through the granting of patent monopolies. The monopoly allows the patent holder to charge prices that are far above he cost of production. This gives them an enormous incentive to make side payments or bribes to increase their sales.

This is a similar situation to one in which the market imposes a price control on a product that is below the free market price. In that situation, the seller has an incentive to try to sell the item on the black market at a price that is above the regulated price. The same situation exists with patent protection, except the gap in prices is almost certainly much larger. Patent protected drugs can often sell for several hundred dollars per prescription when they would sell for just $4-$5 in a competitive market.

It would have been helpful to readers to include some economic analysis in this piece. 

Posted via email from Jim Nichols for GA State House

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