The myth of the big bad drug companies
Richard Epstein in the Los Angeles Times
Repeated studies, both domestic and foreign, have shown that price controls dull the incentives of pharmaceutical companies to develop new drugs. Even talk of price controls depresses investment.Because of its high-fixed, low-variable cost structure, the drug industry will never reach perfect competitive equilibrium. But in our second-best world, ponder carefully the different consequences of two strategies. The first seeks to expand supply by avoiding regulation and encouraging the entry of new companies into the business. The second seeks to hold down prices by direct controls.
The second approach leads to low prices today but systematic shortages tomorrow, while the first leads to greater innovation today and greater choice tomorrow. We must be careful not to mistake price controls for a cure when they are in fact a disease. Let our new reformist Congress beware.
Well said.
(via Instapundit)
