If in the Pharmaceuticals industry patents were non-existent what would be the incentive for companies to incur large R&D costs? If a company like Pfizer knows another company like GSK is going to just copy their new drug and sell it cheaper why would Pfizer take the risk in the first place?
First, the high costs of R&D are mostly paid by subsidies to university researchers today who then go on to sell their patents on to Big Pharma.
Second, a signifigant portion of the costs that they do pay are for FDA approval.
Third, I don’t think I have a third point.
If they wished to stay in business they would have to innovate or die.
Other companies that have high R&D costs don’t seem to be doing too badly where they need high locked in profits like the semiconductor industry where a new chip is basically obsolete after a couple months on the shelf.
I’m pretty sure most of them have cross licencing agreements because they all know there is no way to produce a modern chip without violating someone else’s patents. They don’t really view patents as a means to stiffle the competition but as a legal tool to stop someone else from suing them.
Or I guess they could sell the same old stuff forever like aspirin or Coca-Cola for that matter and work on their branding.
A not insignificant portion of the high R&D costs in the Rx industry is the result of government imposed requirements, e.g., FDA.
Furthermore, drugs could be privately financed by insurance companies offering a Bounty for the development of a drug which, for example, would successfully treat or cure an ailment.
Might also be interesting to look at in the context of dominant assurance contracts.
If R&D is cheap (and it should be much cheaper) then the margins by which a copy-cat operates would not be nearly as strong an incentive. Furthermore (and this is not always sufficient) the innovator at least has the privilege of first sale; which is to say that it takes some time before the copy-cat can bring to market a replica of the product.
We need to eliminate this notion of tremendous R&D costs. Sure, this is a part of the real, current, legal-economic environment, but it would not be part of a free market. This problem is the classic example of a government “solution” to a problem that was previously created by government meddling.
If you examine your answer from a game theory perspective, you can kind of see the folly in it: Pfizer won’t invent new drugs because GSK will copy them, and GSK won’t invent new drugs, because Pfizer will copy them, therefore, as the story goes, no new drugs will ever be created. But this assumes a very, very static economy, where there is only a single way to earn profits on Rx. As I noted in my previous reply to this thread, there are certainly other means by which drugs could be produced by self-interested actors. I mention bounty/reward systems, and a variant of that, Dominant Assurance contracts.
Moreover, think of the many (basically) homogeneous products that you buy quite regularly: cola, milk, toothpaste, toothpics, canned soup, dog treats, etc. All of these products can be and in-fact are replicated! But there are still dozens of firms vying to profit from their production!
Is there a good reason to assume that medication is somehow different?
Interestingly, I remember some anti-capitalist hack used the “lack” of innovation in toothpaste as proof that markets are static and do not innovate. I thought to myself what an idiot or liar, for entertaining such an out-of-context, simplistic belief.
-Jon
For real? At my local mega-mart, there are quite literally a hundred toothpastes, all different flavors, different combinations, some with or without baking soda, with or without whitener, icy-mint through cinnamon burst through bubblegum flavored (for the kids, I presume) in various squeeze tubes and pumps and travel-size tubes.
I fail to see how that’s a big thing, all it means is that drugs companies would have to innovate to stay ahead of their competition, finding new ways to produce the drug for cheaper and make it more effective.
The generic drugs usually work just as well as patented dsrugs and are cheaper, that benefits the consumer.
The patents are just a government intervention made monopoly. It is anoter example of distortion of big business + big government against the rights of the average consumer
Yeah but you see, that isn’t “innovation” according to the socialist drone. Of course, there’s all kinds of toothpaste and there’ll be some really impressive ones coming out in a couple of years (that can restore damaged enamel for instance), but no, capitalism definitely does not spur innovation. [^o)] Of course, I can also take products that can only be improved in limited ways and say there’s no innovation under capitalism…
-Jon
Indeed, where’s the toothpaste that helps make you smarter?
With the true irony being that a lot of ‘innovation’ going on in Big Pharma is subtle modifications of current drugs to keep a patent monopoly and then a major marketing push for these ‘new and improved’ miracles.
A lot of the time the new drug isn’t as effective as the out of patent drug they were meant to replace and it would be in everyone’s best interest to just keep on using the old drug. That’s why the marketing budget is so high with these companies.
I heard a radio show about this where they followed the development of different drug families and studied the effectiveness over time.
Jon,
This reply of yours sounds interesting but it didn’t understand it much. Can you please elaborate?
What didn’t you understand?
-Jon
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what is innovation? as opposed to
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what is innovation under the socialist drone?
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why is there no innovation under capitalism?
Well that’s my point. The author of the article just used toothpaste as proof that capitalism innovates little. My answer was that it’s a lame assertion that ignores the huge innovation the system does bring with it.
-Jon
Tylenol went off patent 30 years ago, but J&J continues to reap huge profits from it. Consumers still choose to spend a little more money on Tylenol because of successful branding. They trust the J&J & Tylenol brand because of their history of safety and quality control. It is the same reason most consumers spend more money on Coke and Pepsi products instead of generic sodas.
In addition, every year, Big Pharma wastes billions of dollars on patent protection. If they diverted that money to R&D, they would have more money to stay one step ahead of their competition. As a result, consumers would benefit from faster innovation and better courses of therapy.