http://maxspeak.org/mt/archives/001689.html

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While we cry over this loss of expected profits, let’s ask why are we in this mess to begin with? In other words, why are we relying on patent monopolies to finance drug research? The Holy Grail in economics is that price should equal marginal cost. Yet, drug patents lead to situations where prices are hugely out of line with marginal cost, in some cases by a factor of 100 or more. Drugs are almost invariably cheap to produce; they are only expensive to consumers because of patent monopolies.

Of course patent monopolies in prescription drugs lead to all the bad things that economists warn about when prices diverge from marginal cost. The most immediate effect is the deadweight loss that results from people not getting drugs that they could afford at the competitive market price, but not at the patent protected price. And, this is not just poor people in Sub-Saharan Africa, there are tens of millions of people in the United States who do not take the optimal drug or the optimal dosage because patent protection makes it too costly.

But this is just the beginning of the distortions. Monopoly profits give drug companies incentives to undertake expensive and often deceptive marketing campaigns. The industry spends more on marketing its drugs than it does on research. In some cases this marketing has effectively amounted to kickbacks to doctors who prescribe their drugs.

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