Patent Monopolies Lead to Corruption: #43,261

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Sunday, 08 December 2013 08:57

The Washington Post had a major article on how the drug company Genentech has managed to create a substantial market for its drug Lucentis, at a price of $2,000 per injection, even though it manufactures another drug Aventis, which is just as effective and sells for $50 an injection. Both are used to prevent blindness. A number of studies have shown them to be equally effective. The article explains how Genentech has been able to maintain a market for a drug that costs 40 times as much as its equivalent competitor, most importantly by not seeking approval from the Food and Drug Administration for the use of Aventis as a treatment to prevent blindness.

While the article is fascinating, it would have been helpful to include the views of an economist who could have pointed out that this is exactly the sort of corruption that economic theory predicts would result from the granting of patent monopolies by the government. Government granted monopolies would lead to distortions in any case, but they are likely to be especially large with a product like prescription drugs, where there are enormous asymmetries of information. The drug companies know much more about their drugs than patients or even their doctors.

It would be reasonable to discuss more efficient mechanisms for financing prescription drug research, such as direct public funding (we already spend $30 billion a year on biomedical research through the National Institutes of Health). Unfortunately the drug companies so completely dominate the political process news outlets like the Post never even mention alternatives to patent monopolies. However, they do occasionally document some of the predictable corruption, as is the case here.