# Think Tank > Austrian Economics / Economic Theory >  Drug Prices Are High Because Govt Grants Big Pharma A Monopoly

## presence

> Traveling the world, writing what the people need to know.
> 
> Washington Moves Forward With Cannabis Research Intenionaly "Sidestepping" Federal Law
> Since DoJ Forced Ferguson Cops to Stop Preying on the Poor, the City is Going Broke
> 
> How Monsanto Silences Dissent (Update!)
> Youre Likely Committing A Crime Right Now In The Land Of The Free
> Avoiding A Cure: How Big Pharma And The DEA Collude To Control Your Health
> The Private Schools of the American Elite (and the Degradation of Public Education)
> ...


http://www.thelastamericanvagabond.c...arma-monopoly/

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## donnay

This is one reason people should try to stop being dependent on the monopolized drugs and the medical mafia that put them on these drugs in the first place.  They will string you along and make you dependent and then make the drug so high no one can afford it and then they beg government to intervene and force them to lower the price.

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## Son_of_Liberty90

> http://www.thelastamericanvagabond.c...arma-monopoly/


Thank you for posting this presence.

I actually just had a conversation about my friend on this topic today.

He comes from the school of thought that humans are naturally geared towards greed and corruption.

The belief that the ONLY thing keeping corporations in check (i.e. not resorting to illegal means to make a profit, lying, etc) is competition.  

Once a given corporation is dominant in a certain market and has a monopoly, they will raise their prices through the roof and screw the customer.

It's a sad point of view, but it seems like a popular view among people today.  It doesn't help that only the bad cases of corporate greed and corruption get showcased in the news, like Enron, Big Tobacco, Wall Street manipulation, private mishandling of prisons, and this most recent case with the epipens.

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## Son_of_Liberty90

Also, can we debunk this notion that companies want to merge, or corporations want to buy out other companies to form monopolistic control? Is it true that it's more expensive for a company to buy out another than still compete?

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## Son_of_Liberty90

One last thing: What would prevent corporations for exercising control over a libertarian "minarchist" government, colluding to form a monopoly?

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## presence

> One last thing: What would prevent corporations for exercising control over a libertarian "minarchist" government, colluding to form a monopoly?


Theoretically, a minarchist government provides official mechanisms (but not necessarily employment) of security, courts, and law enforcement for violations of NAP.   As licensing, IP protection, wage and price controls, permits, prescriptions, approved providers, regulations, contraband, mandated coverages, government contracts, border controls, government jobs, etc. are "contempt of State"/"perpetuation of state" statutes rather than violations of NAP; natural law, the authority and mechanisms for forming a monopoly "in theory" wouldn't exist within a minarchist government.   Monopolies occur because of, not in spite of government edicts.

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## presence

> Also, can we debunk this notion that companies want to merge, or corporations want to buy out other companies to form monopolistic control? Is it true that it's more expensive for a company to buy out another than still compete?


Business mergers occur for a variety of reasons: cost reductions, streamlining of supply and distribution, market penetration, acquisition of skill base, elimination of managerial overlap, etc.  The primary driver for monopolistic mergers however is the FED.   The funny money cycle of monetary policy money creates booms and busts.... during the busts some companies are in dire straights.   When the boom comes, those who survived with credit take over the little dogs.   None of this would happen if FED wasn't manipulating the money supply. 

https://mises.org/library/merger-mon...ruction-wealth



> So what's driving M&A other than CEO ego?
> First of all,  it's cheap money. Wall Street began to fall apart in the summer of 2007  with the M2 money supply standing at $7.3 trillion. The Fed has hit the  monetary gas — we've had TARP, TALP, and who knows what all, and by  November of 2010, M2 was just short of $8.8 trillion, a more than 20  percent increase.
> The prime lending rate was 8.25 percent back in  the summer of 2007; now it's 3.25 percent. Six-month Libor (the London  interbank offered rate) was 5.37 percent in July 2007; last month it was  45 basis points. No wonder someone on CNBC said recently that at these  low interest rates, all of these "deals" (mergers and acquisitions) will  be accretive to earnings.
> A lot of deals will work on paper with rates this low.
> Second,  firms have lots of cash on their balance sheet and it's not earning  anything. US treasuries with less than a year term are kicking off 13 to  27 basis points. Bank CD rates are somewhere around 1 percent for 12  months.
> Rates are not low because people are delaying consumption  and keeping high cash balances. It is the central bank that is keeping  rates low, thinking businesses will begin borrowing and then start  hiring. So rates are low, and everyone with cash from corporate CEOs to  retirees wants to earn something besides 1/2 percent.
> CEOs  especially have money burning a hole in the pockets of their corporate  balance sheets. They could pay the money out to current shareholders in  the form of dividends, but they must figure, "what would the  shareholders do with the money?"
> The CEOs could hire more people  and produce more goods and services, but, no matter what the Business  Cycle Dating Committee of the National Bureau of Economic Research says,  it's still a recession. Demand isn't that good. People are expensive to  hire and especially to fire (if you can fire them at all).
> Finally,  there is increased government interference. Professor Peter Klein has  found that firms make acquisitions when faced with increased  uncertainty, citing regulatory interference and tax changes as major  causes of uncertainty. When faced with increased regulatory  interference, firms respond by experimenting, making riskier  acquisitions — and consequently more mistakes.
> ...

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## Son_of_Liberty90

Thanks presence!

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## farreri

Libertarians need to speak out against big government backed patents more. Was a question about patents even brought up during this year's libertarian Presidential debates?

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## Dr.No.

How do you account for the fact that without patent protection, biotechnological research ramps down significantly? For example, the private pharmaceutical industry has spent $117 billion (and that isn't inflation adjusted) in pursuit of a cure for alzheimer's. They do that because they know that if they win the lottery, they'll be able to make many-fold that amount thanks to government patent protection.

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## presence

> *Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents*
> 
> 
> 
> 0 Comments
> Tags The EntrepreneurFree MarketsHealthEntrepreneurship
> 12/31/2013Nathan NicolaisenPharmaceutical  drug manufacturers are often regarded as the successes of the  intellectual property regime. It is assumed that their willingness to  take risks by investing heavily in R&D is justified by the awarding  of patents over their lifesaving discoveries. Proponents of intellectual  property claim that without patents many lifesaving drugs would not  exist. They assert that generic drug manufacturers would diminish profit  margins and dissipate the original manufacturer’s market share and  innovation would come to a virtual standstill. Further, manufacturers  once willing to create new drugs will no longer do so without sufficient  returns on investment. Research into the matter suggests, however, that  patent protection may not be required for medical advances.
> *Unpatented Medical Technologies*The  notion that unpatented medical technologies are not feasible is  historically false. Surveys of important medical breakthroughs provide  insight into whether patents are absolutely necessary and conducive to  innovation in medicine. In 2006, the _British Medical Journal_  challenged its readership to submit a list of the most noteworthy  medical and pharmaceutical inventions throughout history. The original  list contained over 70 different discoveries before being narrowed down  to 15. The list goes as follows in no particular order: penicillin,  x-rays, tissue culture, ether anesthetic, chlorpromazine, public  sanitation, germ theory, evidence-based medicine, vaccines, the pill,  computers, oral rehydration therapy, DNA structure, monoclonal antibody  technology, and smoking health risk. Of these discoveries, only two of  them have remotely _anything_ to do with patents, chlorpromazine and the pill.1   In another survey conducted by the United States Centers for Disease  Control the results are strikingly similar. Of the ten most important  medical discoveries of the twentieth century, _none_ of them had anything to do with patents.2
> *Natural Market Advantages and Trade Secrecy*Contrary  to popular belief, large pharmaceutical companies may maintain  significant market share advantages after the introduction of generics  through the help of natural barriers to entry. Large pharmaceutical  companies have a first-mover advantage and an established internal and  external structure that competitors, large and small, do not. Regardless  of how fast competitors can manufacture a generic drug (never mind the  fact that they must hire new labor, train new employees, buy raw  materials, establish suppliers, organize logistics, create a marketing  and advertising plan, and set up competitive shelf space), it can be  extremely difficult to make a dent in the market dominance of an  already-established drug. Competition data from India suggests that it  takes approximately four years for generic drugs to enter the market.3   In addition, the Congressional Budget Office calculated that an  original drug manufacturer could still maintain a market share of more  than 20 percent after the introduction of generics. Expanding the scope  of research beyond pharmaceutical drugs, a survey of R&D labs and  company managers revealed that between 23 percent and 35 percent believe  a patent is an effective way of getting a return on investment. At the  same time 51 percent believe trade secrets to be an effective way of  ensuring returns.4
> ...


https://mises.org/library/advancing-...depend-patents

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## presence

> *Intellectual “Property” – The Patent Monopoly* Property rights are limited to that which is finite, or of limited  reproducibility. Ideas are not physically scarce. Likewise, oxygen is  not scarce so it is impractical to consider it property. Land is scarce—_they ain’t making any more of it_.  There is a good reason to utilize property rights to organize  non-violently. But what happens when supposed property does not  physically exist? This is the case with intellectual property. It is an  illegitimate, artificial form of property that only exists because of  state violence. The byproducts of patent “rights” are monopoly rents to  the owner and artificial scarcity for everyone else. This topic is  treated in detail elsewhere. [17] [18]
>  Some believe patents are a necessary evil to entice people to develop  new ideas and technologies. First, it’s unclear whether most  intellectuals are primarily motivated by windfall profits. Profit is  never the inspiration for great minds. As Jonas Salk, the developer of  the Polio vaccine, stated, “There is no patent. Could you patent the  sun?” He had a higher intention for his discovery; he did not want  anyone to suffer needlessly so that scientific pockets may be padded  with cash.
>  But even assuming some socially valuable research would not occur  without the potential for windfall profit, there is a naturally  occurring market mechanism that rewards originality: price gouging.  There is a period of time between which the invention is brought to  market and when competitors are able to reverse-engineer and manufacture  their own version. This window allows the originator to charge a high  price (if they value their marginal personal gain over availability for  poor people). Most importantly, though, eliminating patents would allow  for _more_ creativity. As it stands, developers can’t build upon  the ideas of others without paying royalties. This slows technological  progress.
>  In the case of pharmaceutical drugs this dynamic is particularly  pernicious. A recent study found pharma spent 24.4% of their sales  dollar on promotion, versus 13.4% for research and development, as a  percentage of US domestic sales of $235.4 billion. [19] The artificially  high prices protected by patents deprive the poor of necessary goods,  as is the case with malaria and AIDs medication throughout the  developing world. Generic drugs, sold at cost of production, could  ameliorate this tragedy. Today, people are dying to boost profits. By  all measures, the pharmaceutical industry is the most profitable of all.  [20]
>  “The combined profits for the ten drug companies in the Fortune 500  ($35.9 billion) were more than the profits for all the other 490  businesses put together ($33.7 billion) [in 2002]. Over the past two  decades the pharmaceutical industry has moved very far from its original  high purpose of discovering and producing useful new drugs. Now  primarily a marketing machine to sell drugs of dubious benefit, this  industry uses its wealth and power to co-opt every institution that  might stand in its way, including the US Congress, the FDA, academic  medical centers, and the medical profession itself.” – Marcia Angell,  M.D.


https://c4ss.org/content/19098

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