The law of one price
From the desk of Jane Galt:
Prescription drugs seem to be proving out the economic theory that one cannot long sustain different prices in different regions if the premium in high-priced Region A is higher than the cost for transporting the goods there from Region B. For a long tme, the theory didn't quite translate into practice, because of the information costs involved in learning about Canadian drug prices, finding someone to ship them to you, and so forth. The internet has, of course, removed those information problems. Now the burgeoning business in importing pharmaceuticals from Canada is threatening the stability of pricing regimes on both sides of the border.
Alone among commenters, I am unsure which regime will collapse: the US patent regime that keeps prices high, or the Canadian system of price-controls and bullying that keeps them low. Everyone else seems to know exactly what will happen--the liberals are sure that this will finally usher in the blessed era of practically free drugs we've all been waiting for, and the libertarians that this will finally force those loathesome Molson-quaffing, Chesterfield-sitting, statist free-riding bastards up in Ottowa to pay their fair share of drug development costs. Me, I jus dunno. On the one hand, I can see how a combination of political pressure and free-wheeling individualist black-marketeering might lead to our importing Canadian price controls. On the other hand, I can also see how strategic behaviour by the pharma companies to limit Canadian supplies to the amount of drugs actually consumed by Canadians could ultimately destroy the Canadian regime, as all of their artificially low-priced drugs end up on the American black market, and Canada has to raise prices in order to get its people drugs.
Right now they're trying to forge what we might call a "third way": Canada is considering forbidding the export of prescription drugs. That strikes me as unlikely to be much more successful than other sorts of export controls. What would undoubtedly be successful would be for Canada to nationalise the pharmacies, becoming the sole distributor. The transaction costs are still too high to get a black market going via thousands of individual Canadians. This seems rather extreme, but one should never underestimate the lengths to which governments will go to keep their populace sated with artificially cheap goods.
Then there's the possibility that we will multi-source our price control importation. The American population is ten times that of Canada; Canadian pharmacies could never plausibly buy enough drugs to supply our whole population. Europe, on the other hand, is larger than America, and we might plausibly be able to acquire a significant fraction of our drugs through that channel. |
