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  • Drug Prices in the USA

    There is the contention that without the ability to overcharge American’s the drug companies won’t invest in Research and Development. This is such a poor argument I can’t believe people can make it without suffering a big blow to any credibility they had. Obviously drug development has a very high cost (creating a high fixed cost) and often drug manufacture has a small marginal cost (though at times the marginal cost is also high). Right now the companies count on the American market to provide funds for much of the research, development, marketing and profits. Then they sell the drugs in other markets only looking to maximize profits looking at marginal costs. Obviously, if they no longer could count on excessive prices in the United States they would have to spread the fixed cost over the rest of the world. The argument that they won’t invest in research and development without excessive costs in America is false. They would adjust their pricing structures around the world based on losing the cash cow of the American consumer. That should be obvious to anyone who even took one economics course.

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