March 2019, Dean Baker
Patent monopolies on prescription drugs raise their price by one or two orders of magnitude above the free market price. In this way, they are equivalent to tariffs of several thousand percent or even tens of thousands of percent. Just as tariffs lead to economic distortions, and provide incentives for corruption, so do patent monopolies on prescription drugs. We continually see evidence of this as drug companies are routinely found to make payoffs to keep generics out of the market, promote their drugs for uses for which they are inappropriate, and conceal evidence they are less effective than claimed, or even harmful.
The enormous distortions from patent monopolies mean that there are large potential gains from working around them. This working paper discusses four mechanisms for getting drug prices closer to free market levels with actions at the state or local level or by private actors.