AltInst: Cheaper drugs if governments buy the patents at auction

I'm not sure whether AltInst has already debated this. If not, it seems
right up AltInst's street. It is summarised from an old 1996 issue of the
Economist (June 15th 1996, an article entitled ŒA patent cure-all?¹). It
goes as follows:

The government should buy drug patents at auction and make them publicy
available. The present patent system means that drugs are very expensive, as
companies take advantage of their monopoly ­ their reward for successful
innovation.

In many countries a high percentage of healthcare research is publicly
funded. A government could spend this money better, argues Michael Kremer,
an economist at the Massachusetts Institute of Technology, by holding
auctions at which rival drug companies would be invited to bid for patented
drugs that other firms had invented.

The auction would thus establish a price equivalent to what a company could
have got from its Œmonopoly profits¹. The government would then almost
always buy the patent at a premium to this auction value (but sometimes it
would fail to buy, so as to keep the companies guessing and so as to deter
price-raising collusion).

For further information see ŒA mechanism for encouraging innovation¹ by
Michael Kremer, HIID Discussion paper No. 533, May 1996.

-- 
With best wishes, Nicholas Albery <rhino@dial.pipex.com>
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