MM, how do you like this solution?
http://www.columbustownhall.com/townhall/i...ST&f=9&t=797&s=Legalize cartel for US drug firms to counter reimportation of drugs from Canada
In the early 20th Century an economic condition often existed in the labor market called a monopsony, or single buyer. Powerful employers were the only employers in some towns, and this concentration of power allowed them to exploit the captive labor market and effectively set the wages. To remedy this condition, laws were passed to allowed labor cartels/unions to be formed. The theory was that in order the balance the concentrated power of a single buyer, one needed a single seller. The single employer no longer could no longer drive wages down by pitting one worker against another; they had to negotiate with a single union.
Today, a similar condition exists in the drug market. Canada has concentrated the buying power of Canada’s healthcare industry in the Government. Instead of our many drug companies negotiating with many hospitals and pharmacies in Canada, our many drug companies have to sell to the Canadian Government monopsony. Because of the segmented market, Canada is essentially allowed to “free ride” on the backs of the American drug consumer. American drug consumers pay a fair market price which is above the firm’s average total cost which includes the R&D costs of the drugs. Because enough profits are earned in the American market to recapture all the total costs of a drug, drug firms are able to sell drugs much cheaper to the Canadian Government. As long as the enough American drug consumers are paying a price above the average total cost, it is profitable for a drug firm to sell a drug to the Canadian Government as long as the price is above its average variable cost, which is much lower than the average total cost. The actual materials in a drug costs very little. It is the work involved in figuring out which chemicals to mix that is expensive. It is estimated that it costs upward of $800 million and 10 to 12 years to gain FDA approval and bring a new drug to market. This leaves the drug company only 8 to 10 years of patent protection to recapture this huge and risky investment.
Because of its monopsonic market power, Canada is essentially able to effectively violate the legal drug patents of US Drug companies. Patents are granted to allow patent holders to capture above market profits during the life of the patent. Essentially they are granted a legal monopoly on their product for a period of time. By allowing the Canada Government monopsony to negotiate prices with US drug companies that are below the average total cost, they are effectively violating the patent, and the Canadians are getting a free ride on the backs of the America consumer, which must pay a higher price and fund much if not all of the R&D costs. In addition, trade agreements between countries should be negotiated between the respective Governments. One country’s Government should not be allowed to set the price for another country’s firm’s products, and distort the market. Imagine if Canadian lumber firm’s weren’t allowed to sell to US lumber yards, and instead could only sell to the US Government at a price below the average total cost.
In order to remedy this market failure and stop the Canadian free ride, the US Government should allow, encourage, and even mandate the formation of a US Drug Cartel for international drug sales. Anti-trust laws and competition would continue to apply for the domestic market, but the US Drug Cartel could set the price that it was willing to sell US patented drugs for in the international markets, much like OPEC sets the price and quantity of oil on the world market. By having the US Drug Cartel set the price above the average total cost, the R&D costs would be more equitably distributed over all drug consumers, not just those in the US. Ideally this would lead to lower domestic drug prices, and foreigners paying more of the R&D costs. If the idea of a cartel is not politically palatable, then the US Government should become the market’s balancing power. Canada and other socialist countries would no longer be allowed to negotiate directly with US Drug firms. They would have to negotiate with Uncle Sam. That way one Canadian Government monopsony is being countered by the US Government monopoly.
http://yconservatives.com/Martin-90a.html 
Columbus Townhall > Forum > Politics > National > Health Care (Moderators: Peter, CTH Public Relations)
Topic: Columbus Town Hall Makes the Dispatch
