How competition lowers the costs of medicines

This paper examines whether there are any economic advantages in allowing entry to pharmaceutical markets at the manufacturers' risk and at prices of their choosing. To examine this thesis, 6 countries (the US, the UK, Denmark, Holland, Germany and South Africa) were chosen for study because they allow a degree of free access and (varying) degrees of pricing freedom, at least to the extent that new product prices are not directly controlled. In just about every other European market, there are direct price controls on new products. The key finding was that, in markets where there is some semblance of pricing freedom, competition tends to keep down the price of medicines. Rival products serve a useful purpose in containing market prices. Since innovative rivalry is a sine qua non in pharmaceutical markets, this price-depressing competitive influence should be allowed to have its full effect and not be distorted or suppressed by regulation at the level of either the pharmaceutical manufacturer or the retail pharmacist.