Healthy Skepticism Library item: 5337

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

Guell RC, Fischbaum M.
Toward allocative efficiency in the prescription drug industry.
Milbank Q 1995; 73:(2):213-30

Abstract:

Traditionally, monopoly power in the pharmaceutical industry has been measured by profits. An alternative method estimates the deadweight loss of consumer surplus associated with the exercise of monopoly power. Although upper and lower bound estimates for this inefficiency are far apart, they at least suggest a dramatically greater welfare loss than measures of industry profitability would imply. A proposed system would have the U.S. government employing its power of eminent domain to “take” and distribute pharmaceutical patents, providing as “just compensation” the present value of the patent’s expected future monopoly profits. Given the allocative inefficiency of raising taxes to pay for the program, the impact of the proposal on allocative efficiency would be at least as good at our lower bound estimate of monopoly costs while substantially improving efficiency at or near our upper bound estimate.

Keywords:
Drug Costs Drug Industry/economics* Drug Industry/legislation & jurisprudence Efficiency Humans Legislation, Drug* Patents/legislation & jurisprudence* Policy Making Politics Prescriptions, Drug United States