Market Power

Musings by an academic economist on the power of markets and the power over markets.

Monday, February 28, 2005

Drugs are Good, M'kay. But Profits are Bad

From a Washington Post survey on pharmaceuticals and the companies who develop and make them:

By an overwhelming majority, Americans believe prescription drugs significantly improve their health and quality of life, but almost as many say the companies that make them put their profits ahead of the well-being of consumers, according to a new poll released yesterday.

The survey by the Kaiser Family Foundation found that 78 percent of adults say prescription drugs make a "big difference" in people's lives, and 91 percent believe drug companies contribute significantly to society by researching and developing new drugs.

But 70 percent think the pharmaceutical companies that produce them are more concerned "about making profits" than developing new drugs, according to the survey.

How did those shoes get on your feet (assuming you are wearing shoes at this time)? Did those shoes get on your feet because some benevolent government official didn't want your tootsies to get too cold on this last day of February, thereby issuing you a pair of shoes? Or did some shoe company, employing people you probably will never meet, produce them for you? How did the shoes get to your local store? Did some trucking company or some air freight company ship them to a store near you or did some other benevolent government official, knowing full well that you'd need to have shoes this morning, direct the shoes to be sent to the store? Why did the store sell you these shoes? Did that store provide those shoes for you because it wanted to be happy? The answer is no. What was that thing that each of the companies who handled your shoes responding to? That "thing" was thee ability to make profits - and it is the ability to make profits that allowed you to obtain the money necessary to buy those shoes.

Of course the drug companies are seeking profits. That's why they are spending so much to develop drugs. If we limit their profit-making ability, we blunt their incentives to do research and develoment. The more we blunt their ability to seek profits, the less-satisfied people will be with the medicines they acquire.