Update: Adamess proposes a price discrimination approach to monopoly drug pricing:
The expected profits of research come mainly from the developed world, where countries are rich enough to pay the high prices that pharma charges for its medications. Developing countries are usually too poor to pay very much, and even if they might be able to pay, they may invalidate patents to avoid pharma’s markups. (To pharma, the possibility that countries refuse to honor patents simply reduces expected profitability.)
I would argue we already have a differential markup approach but it’s not Big Pharma that is choosing the varying markups – but rather the decisions of local government. Profit maximizing monopolists prefer to control how they price discriminate and not let governments control such matters.
the generals are now winning points worldwide for an attack on pharmaceutical giants like Merck, Sanofi-Aventis and Bristol-Myers Squibb. By invoking vague World Trade Organization rules that allow governments to void drug patents during public- health emergencies, Bangkok has since November approved generic production of two popular anti-AIDS drugs and one blood thinner, slashing their cost to patients by up to 90 percent. Bangkok is now urging companies to begin discounting other drugs; Health Minister Mongkol Na Songkhla warned last month that “if negotiations fail, we are ready to act.” Experts have likened the WTO drug rules to nuclear weapons – deterrents best never used. Since the rules came into effect in 2001, drug companies have largely avoided becoming targets by slashing prices or extending royalty-free licenses to poor nations.
There is a bit of a self-contradiction here. Several nations establish market structures where the pharmaceutical companies are not allowed an unregulated monopoly for their patented products. Whether the threat of not extending patent protection or price controls are the reasons why these pharmaceutical companies sell their products at lower prices, not allowing unregulated monopoly power is a rather common place practice. Mr. Wehrfritz presents both sides of this debate:
Humanitarian groups like Oxfam and Doctors Without Borders argue that overpriced meds can cripple public-health budgets in emerging nations like Thailand as well as in poorer places, and have encouraged other governments to follow Bangkok’s lead. But Western governments are alarmed … “This is a massive political movement against intellectual property,” says Philip Stevens, director of the health program at the International Policy Network, a London-based think tank. “It’s not specific to Thailand, and it seeks to make medicine into public, not private, goods.” … In a 2006 study, the World Bank predicted that despite a model AIDS-prevention program, Thailand would see a surge in costs as the virus grows resistant to older antiretroviral drugs. New, patented drugs would drive up the yearly cost per patient from $481 to more than $6,700 because they’re not available in generic form … The nationalistic generals put generic production into the hands of a state-owned manufacturer with a track record of producing substandard copies that speed up resistance in AIDS patients. And they began pushing to make generics not only for AIDS drugs, but also for cancer and heart medications and antibiotics. A top health official suggested recently that patents on some 15 percent of rights-protected drugs now sold in Thailand could be eventually suspended. “Their aim is to make Thailand a regional manufacturing hub [for generics],” says Ste-vens. “There’s a lot of industrial policy and self-interest here.”
Dean applauds the decision of the Thai government:
By eliminating patent monopolies on several AIDS drugs, as well as a few other medications, Thailand was able to reduce prices by close to two-thirds. Naturally, the drug industry is furious over the possibility that their patent monopolies may not be protected. Newsweek apparently shares the drug industry’s anger, telling readers that “advocates of free trade see Thailand’s move as a big threat.” Actually, any real advocate of free trade, almost by definition, would have to applaud Thailand’s action. After all, the Thai government is eliminating a government imposed monopoly and allowing drugs to sell at prices that are much closer to their free market level.
I’m sure we’ll here from others why the protection of intellectual property rights is important. I’ll try to pass along the other side of this debate when they do.