Subject: RE: mandatory patent auctions
From: <>
Date: Fri, 6 Oct 2006 14:40:43 +0900

Anderson, Kelly writes:

 > Differential pricing sounds a lot like subsudy to me.

Put it this way.  Take subequatorial Africa, pull it up by the roots,
put a stamp on it, and mail it to Alpha Centauri.  What happens to the
price of drugs in the U.S.?

Nothing.  The marginal costs of producing the drugs do not change,
they are more or less constant at some level, and the demand in the
U.S. does not change.[1]  So nothing changes in the pricing equation
derived from the monopolist's profit maximization for the U.S. market,
and she sells the same quantity at the same price in the U.S.[2]

The only thing that changes back on the Earth is that the monopolist's
total output and profits decrease.

So what subsidy was Namibia receiving?  What subsidy was the
U.S. paying?

[1]  These are plausible statements about the drug industry to the
best of my knowledge.

[2]  The crucial assumption is that the monopolist is allowed to
maximize profit.  If the monopolist faces price regulation in either
or both regions, then almost anything can happen depending on the
details of regulation.