The Myth of the Free Market in Pharmaceuticals

Actually no, I didn't write that title, although I could have. In fact I could have written this entire article, but it was written by  Rena M. Conti, Ph.D., Richard G. Frank, Ph.D., and David M. Cutler, Ph.D. Unfortunately it's paywalled, and there's no abstract, but here's the link so you can read the first sentence, and you can register to read it for free. (You get two free articles per month.)

 

Since I'm giving them a referral, I don't feel terribly guilty about raiding this piece fairly extensively. It begins:

Critics of U.S. policy aiming to reduce spending on prescription drugs claim that the government is wrongfully interfering with a “free” market. A recent comment from Merck about the 2022 Inflation Reduction Act (IRA) exemplifies industry complaints: “Congress has long been committed to a free-market approach based on market-driven prices. … Last summer, however, Congress charted a radical new course.”1 But the modern U.S. pharmaceutical market is not what Adam Smith would have considered "free."

 

They use quotations marks where I prefer to use the trademark symbol (Free Market™) but same idea. Actually there's no such thing as a Free Market™ for anything but we'll concentrate on pharmaceuticals for now. Here is their summary:

 

 

So here's today's challenge. Yes, there are products for which government intervention in the market is not as extensive, or at least not as obvious. But do they meet the three criteria proposed by these authors? (And by the way there are other criteria for the Free Market™ that they don't even mention, that also do not pertain to reality here or anywhere else, but I'll keep it simple.) Why or why not? And, given that some of the deviations from the Free Market™ fantasy in this particular case pertain to government regulation, should the government be less involved in some ways in the market for pharmaceuticals? If so, would the drug companies actually like it? It seems to me they're actually very happy about some of what we see in rows 2 and 3. Should it be more involved in some ways? Try to think very clearly and specifically about the reasons for government regulation of the pharmaceutical market. I'll give you a hint:  a lot of it has to do with the problems in the top row.