Healthy Profits to Help Sick People

by Tom Palmer on June 10, 2005

Aids Epidemic.jpg
Do They Need Slogans or Solutions?
My friend Deroy Murdock has an especially good column today on what happens when ideological crackpots demonize the pharmaceutical firms that are inventing new treatments for AIDS.

If AIDS Activists wanted to help people suffering from the disease in poor countries, they’d promote more effective means to allow pharmaceutical firms to engage in price discrimination, charging higher prices to people who can pay more and lower prices to those who cannot. Some are doing just that and thereby demonstrating that their motivation is to help the sick, rather than to bash the successful.

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Are Patents Needed to Make Up for FDA Kneecapping?
July 2, 2011 at 11:41 am

{ 2 comments }

Mark Brady June 10, 2005 at 11:53 pm

I understand your argument in the second paragraph. However, price discrimination in pharmaceuticals is only possible because of the monopolies conferred by patent law. Yet you have argued and written papers against patent law–indeed you link to these on your website. Have you revised your views on this subject or are you just saying that, as long as there is patent law, price discrimination should be encouraged in order to increase the rewards to pharmaceutical innovation? However, if the latter is the case, is this not implicitly an argument for patents?

Tom G. Palmer June 11, 2005 at 1:48 am

I meant what I wrote. If they wanted X, they would do Y. Fostering effective price discrimination would be the most effective means of delivering the drugs to those who need them in poor countries. Creating an internally consistent theory to amaze one’s circle of internet friends is probably not at the top of the list of priorities of the people to whom the advice would be directed.

Pharmaceuticals and chemicals offer undoubtedly the best cases for patent protection on utilitarian grounds. In my Hamline Law Review article (http://www.tomgpalmer.com/papers/palmer-non-posnerian-hamline-v12n2.pdf ), p. 301, I quoted from a study by Edwin Mansfield from the American Economic Review in which he pointed out that “patent protection was judged to be essential for the development or introduction of one-third or more of the inventions during 1981-1983 in only 2 industries — pharmaceuticals and chemicals.” That seems not to have changed. The reason is pretty easy to understand: reverse-engineering in the case of chemicals (which broadly includes pharmaceuticals) is quite easy. In the case of pharmaceuticals, at least, R&D costs are very high and would still be high even without some of the very costly efficacy tests imposed by the Food and Drug Administration. Furthermore, the benefits of new pharmaceuticals are enormous. If one were to make a case for patent law, that’s the strongest industry for which to make it. And if one were seeking to help sick people, one would be well advised to seek practical methods, given the parameters of current debate, that would deliver cheap medicines without curtailing innovation. Price discrimination is best suited to that.

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