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  • Writer's pictureStaff @ LPR

OPINION: Price Fixing Drugs Hinders Research and Development

The free market requires every type of business to compete on price and quality in order to make a profit. Price and quality are closely related. As the quality of an item increases, so does the price. This is true in both the short term and the long term. In the short term, price is driven by the quality of the component parts. A better fence requires better steel which will be more expensive. This makes sense. In the long term, higher prices can be reinvested to create new products and optimize the existing products through research and development.


This also makes sense.


Admittedly, some industries do not have much to gain from reinvesting into research and new products. For these industries, the focus for competition is cutting costs. This is not the case for the drug industry. Investment in research has yielded great progress in modern medicine, and we have not yet reached our limit. Stephen Moore gives an excellent example: “The age-adjusted death rate from cancer and heart disease has fallen by almost half since the 1960s — a miracle of human discovery and innovation.” This progress would be impossible if not for drug producers reinvesting their profit from previous sales into research for better drugs. As the quality of the drugs improve, so does the health of the customer.


Price fixing the cost of drugs would hinder the amount that could be reinvested. Again as succinctly explained by Moore, “Most new drugs fail, and hundreds of millions can be spent chasing a promising drug that fails in clinical trials. A few “miracle” drugs have to cover the cost of hundreds of losers.” With so much potential progress in the health industry, we should be incentivizing further research of new treatments. Capping the price of the successful drugs will destroy the companies that are doing just that.


It is ironic that those most in favor of the practice call themselves progressives since they stand in the way of scientific progress through R&D. Proponents of price fixing are pursuing a noble goal. They hope to keep drug prices low so consumers can access the drugs. However, their view is too shortsighted. Price fixing would hinder the same type of reinvestment that ultimately produced the drugs they are trying to price fix. Both sides are concerned with promoting the health of individuals. But restricting research investment would create more long-term costs than short-term benefits.

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