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To: John Koligman who wrote (183422)	2/3/2006 7:01:58 PM
From: TimF	Respond to of 186894

OT Increased demand for MSFT software might also likely result in a higher price at least if that demand was seen as sustainable at a higher price over a long period of time. In this case you aren't talking about a larger overall demand for a product as much as you are talking about a larger demand in specific countries/markets. Lets say there was no restriction on or incentive against re-importing drugs from Canada. Now you have nearly 300 million potential new customers trying to buy drugs in a price controlled market that use to have about 32 million potential customers. Demand goes up by over 900%. Where is the extra supply going to come from. Are the American drug companies going to crank up shipments to a price controlled country and reduce them in the higher priced market? Probably not. They may increase shipments to Canada but probably not by 900+ %. If need be they would abandon the Canadian market rather then lose their profit margin in the American market. Lets say shipments go up 100%. Well now you have an over 900% increase in demand and a increase in supply of only 100%. If the prices are free to move than you get a higher price until demand and supply balance again. If prices aren't free to move than some do without. Maybe Canadians start importing drugs from the US where they are relatively expensive but available. Maybe Canada bans the re-export of American drugs. Maybe a lot of things could happen but its unlikely that one of them would be that both Americans and Canadians get drugs at Canadian prices. In small numbers Americans can get drugs at Canadian prices. I know someone who does, but if that was our normal way of getting drugs you would run in to the problems I mention above. If you do wind up forcing American prices down to Canada's (and I don't think you would) than you get another set of problems. Currently the drug companies subsidize the drug sales in countries with price controls with the profits from there drug sales in countries without (mostly the US). Since the revenue from the incremental sales more than covers the small marginal cost of producing some more pills, and since the drug companies don't feel they have a choice they accept this. The extra revenue doesn't cover all the overhead, or at least it doesn't give a good return on investment once the overhead is considered. That is acceptable to the drug companies because Americans pay for that overhead, and return on investment. Sure some of this overhead is advertisements and promotion. Maybe there would be cuts there, or maybe it would increase as the companies fought over a shrinking revenue pie. Either way it wouldn't be the only think that shrunk. Another big item is research and development. Drug companies do a lot of this because of the large returns they can make on a successful new drug. Many drugs are less successful or don't get approved, but the winners more than make up for this. But if you impose price controls you greatly reduce the return on investment, and thus the incentive to make this investment.