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funperson

If a price cap is far lower than the equilibrium price, that would ruin the incentive for innovation. However, what if caps were imposed along with tax cuts for corporations that sell drugs? If the tax cut cancels out the decrease in revenue, the product can be more affordable to consumers and the government has less money to worry about in Medicare perhaps. 

MayCaesar

In general, every governmental interference in the economy, no matter how well-intentioned, has very unpleasant side effects, and this proposal is no exception. Monopolies and oligopolies no longer being able to dominate the market and profit from the lack of supply are dis-incentivized from producing the rare drugs: such production is very risky, because without the presence of significant pricing history of the drugs the companies never know if investment in the production of them is going to pay off. As a result, less drugs are produced, and consequentially fewer people have access to the drugs. Now imagine if we are talking about a real life-saving drug, for example, one curing a very difficult form of cancer... Then the governmental interference will almost literally result in the loss of human lives.

What is better, 10 million people being able to buy a drug for $10,000 per bottle, or 1 million people being able to buy the drug for $1,000 per bottle and 9 more millions facing the shortage? That depends on what evaluation scale you choose to use. I do think that the government's evaluation cannot be forced on free individuals, however.

What the government could do instead is abolish the current restrictive copyright/patent system. This way, whenever a company develops a new drug, anyone else can immediately start reproducing that drug and selling it at whatever prices they want. Then the market will set the price at the equilibrium naturally, without any unpleasant side effects. A monopoly dies out as a static concept, the corporations can no longer get away with raking up the prices into the sky due to the hardships of the free market competition, and the technological innovation is pushed to its limit.

Applesauce

@MayCaesar

Not much I can add to that.  Here's a prime example.  If you've been watching t.v. you've seen the ads for the generic Viagra.  An online doctor will evaluate you and give you a prescription for it and you buy it from their website. They are selling them for $5 per pill with a subscription.  However on goodrx they are around $3 locally vs $60 for the brand name.

funperson

A price cap has a lot of potential to go wrong but if taxes are lowered that can offset it, but the price cap couldn’t be too drastic. Reforming the patent system also works. That way you can have multiple producers so surely at least one would sell it for a lower price.