Quote:
Originally posted by sgtclub
This assumption has merit. They will not accept significantly less profit. Instead what they will do is stop or significantly decrease investing in R&D (an expense) and trim jobs to right size the operation, which will negatively effect technical progress (e.g., good luck coming up with a cure for Alzheimers).
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Sure, but your assumption is that prices for drugs are currently at their optimal level. (By optimal I mean welfare maximizing, and that includes both producer and consumer surplus). They are not. Let's put aside the cross-border-subsidies and look just at the US. Each drug manufacturer charges a monopoly price for its drug. Right there, you've lost consumer surplus and create dead-weight loss. We need go no further. But we can, because of the degree to which medicine is generally subsidized in this country. If people were forced to pay their own medical bills, do you honestly believe that 1/7 of all spending would go to medicine? No chance (and that's true even if wealth is distributed more fairly). Every insurance plan creates gross overincentives for treatment, either through testing or drugs, neither of which would happen if the full price were paid by the consumer (e.g., I recently went for a $2500 PET scan "just to rule out any possibility" of a certain disease. I paid a 10% copay, which meant I didn't question the need for the test at all). So, drug makers also benefit from artificially inflated demand induced by subsidized products.
In short, you need to start from the right baseline before you say it's a bad thing to reduce R&D.
