Question

Patents protect some inventions. One of the controversial aspects of the patent system is the patents that are granted to pharmaceutical companies. Critics of the patent system claim that these increases the price of life-saving drugs and make them unaffordable to the poor. What would happen if drugs were not allowed to be patented in the interest of increasing their availability at a lower price? How do the long-run and short-run effects differ? Please be descriptive and use diagrams if necessary.

Answer 1

the short-run and long-run effects will indeed be different. In the short run, if drugs are not allowed to be patented, this will lead to the free spread of the know-how to make specific drugs. The supply of these drugs will increase and the price will come down which will benefit the poor by making the drugs more affordable. But in the long run, this will create disincentives. A pharma company is spending millions of dollars in research and development that allows it to come up with novel drugs. Being the first to produce a drug is of immense economic value for the company and they devote most of their resources to being the first to innovate. Now, if they can not patent their drugs, there will be no incentive to innovate and look for novel drugs as the company can not make enough profits to justify the cost. This will lead to an overall decline in innovation in the sector and can reduce the supply of drugs in the long run, thus increased prices with less variety.

Thus, although it is true that the drug prices are unreasonably high and there needs to be a way to make it more accessible to the poor, just getting rid of the patent system will not solve the problem.