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Price Controls In Foreign Markets

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Another thread about export subsidies reminded me of a problem I've thought about, but to which I have not found a solution. Specifically, the problem of foreign governments imposing price controls on goods produced by domestic companies. Normally, this would result in a shortage of the product in question. There seems to be at least one exception to this: pharmaceuticals. Pharmaceuticals differ from a "normal" product in two respects: the market for a particular drug is limited to the incidence rate of the disease it is meant to treat, and the marginal cost of production is relatively small compared to the cost of research and development.

Since the market is limited (as is the term of patent protection for a given drug) the manufacturer has to recoop a certain amount of their research and development investment on each pill, in addition to the cost of production, to maintain long-term profitability. However, the sale of a given pill is "profitable" so long as the manufacturer gets more than the cost of production from the sale, since the costs of research and development are "sunk costs" and are not recoverable by refusing to sell the product. This enables price controls to be set well below what the normal "market price" would be without jeopardizing the supply. Even with the price controls in place, the company makes a greater profit by selling than by not selling, so they continue to sell. Additionally, if the company refuses to sell to a particular country because of the price controls, it's patent protection would presumably be revoked by that country.

Under such a scenario, the pharmaceutical company is forced to make up the difference by increasing its prices in countries where no price controls exist. Effectively, this amounts to the non-price-controlling coutries subsidizing the medical research that benefits the price-controlling countries.

How would an Objectivist government protect the rights, not only of its own pharmaceutical companies, but also of its citizens, who would be subsidizing those other countries, since it would never have price controls of its own. Should it allow its citizens to purchase those drugs from foreign pharmacies, where they can benefit from the price controls? In my mind this would make them accessories to theft and/or extortion. Should it ban the reimportation of price-controlled goods? Should it concentrate on getting the foreign government to lift the price controls? By what means would it negotiate for such? Wouldn't any concession in such a negotiation constitute a complete surrender of principle?

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How would an Objectivist government protect the rights, not only of its own pharmaceutical companies, but also of its citizens, who would be subsidizing those other countries, since it would never have price controls of its own.

It is up to the pharmaceutical company to decide on what terms it is willing to deal with the government or citizens of a foreign country. I'm sure they will try to make decisions and contracts which maximize their self-interest.

The only time our government should get involved is if the rights of Americans are violated. If an American's contract is breached by a foreign party or his patent is violated, our government should do something about it.

If it involves a friendly government we have diplomatic relations with, we should first apply diplomatic pressure to stop it. Considering that we have most of the power in the world in almost every respect, diplomacy -- done right and selfishly-- would probably suffice.

If it involves a hostile government, military/economic measures, like an embargo of the goods in question, might be a good move.

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is military action necessary for a breached pharmaceutical contract? Not to antagonize you, because i doubt this was your intention, but could you ever see that happening?

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is military action necessary for a breached pharmaceutical contract? Not to antagonize you, because i doubt this was your intention, but could you ever see that happening?

I was discussing HOSTILE governments that we don't have diplomatic relations with. Also, there are many possible levels of military involvement. The one I mentioned -- an embargo -- has been used against many governments with regard to many items and is a relatively mild military intervention.

I can see our government saying to another government we have no possibility of reasoning with -- such as Cuba or North Korea -- "If you violate our drug patents, we will block shipments of drugs or drug manufacturing machinery into and/or out of your country."

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