Monday, October 04, 2004
Drug reimportation explained by way of Coca-Cola
[Robert Lawson, "The Reimportation Question," Division of Labour, 30 September 2004.]
Economic Freedom of the World co-author Robert Lawson explains how property rights impact the drug reimportation debate in this excellent analysis on his blog, Division of Labour:
Professor Bainbridge asks what's the conservative position on importing drugs from Canada.
"shouldn't the conservative position be one of promoting markets and individual choice by allowing foreign drug sources to compete for the dollars of US citizens?"
I'd certainly agree with him if in fact we were talking about "foreign drug sources" but we're not. Here we are talking about American drugs being sent to Canada and then Americans buying them back. Wait a second! Why would we do something like that? Think about it. In a normal rational world it would make no sense to make a drug in say New Jersey, ship it to Windsor, and then ship it back to New Jersey. But we don't live in a normal rational world. We live in a world where Canada imposes price controls on drugs.
From an economic point of view reimportation is less about importing drugs than importing price controls. And I KNOW what the conservative position is on price controls.
Furthermore, as a libertarian I support the right of American drug companies to market their products in other countries under the condition that the drugs not be resold. This is common practice in many businesses. Airlines prevent people from reselling tickets. My university charges some students $20k and others $2k per year. It is perfectly within our rights to prohibit a student from enrolling at $2k and reselling the spot to someone for $20k. Similarly, it seems to me that it's perfectly ok for drug companies to sell to Canada (at their ridiculous price controlled prices) under the condition that they not be resold to the U.S.
P.S. I've noticed a lot of my students are buying cheap international editions of American textbooks. I got on them a bit about this too.
UPDATE: A reader wrote in with this, "I don't know about the reimportation of drugs equaling the reimportation of price controls. The analogy between a spot at Capital and drugs isn't complete, because the spot at Capital doesn't move... it's more of a lease. Drugs, once they are sold, are gone: if we are transferring property rights then the right to re-sell must be included, right?"
My reply: In a private property rights regime buyers and sellers may contract in any way they see fit. In this case, the drug sellers want to impose a contractual condition on the buyers that they not resell the product. This is not inconsistent with liberty. Indeed to prohibit this sort of contract would be inconsistent with liberty.
Consider another example: Suppose Coca-Cola wants to secure a contract to supply pop [we are in the midwest so it's pop] at Ohio State University. OSU, being big and having some degree of market power, is able to secure a low price on the Coke products supplied by the firm. But Coke also wants to sell to nearby High St. businesses at its usual retail prices. So it gets OSU to agree contractually not to sell Coke off-campus. Now, suppose Coke decides to buy up lots of Coke products at the low prices and then resell to High St. businesses thus undercutting Coke's own position on High St. Clearly OSU has violated the terms of the agreement and this should not be permitted. I argue the drug case is very much the same.
So my position is not against reimportation per se. It is against reimportation when such reimportation violates the contractual terms of the sale. Also please note that my argument against reimportation is based on contract theory not public policy grounds. I do reject the FDA's ridiculous argument that only THEY can determine what drugs are safe.
Interested in finding out more about reimporting drugs from Canada? Visit the Flint Hills homepage to find out about our upcoming luncheon on the subject featuring Sally Pipes of The Pacific Research Institute: http://www.flinthills.org
[Robert Lawson, "The Reimportation Question," Division of Labour, 30 September 2004.]
Economic Freedom of the World co-author Robert Lawson explains how property rights impact the drug reimportation debate in this excellent analysis on his blog, Division of Labour:
Professor Bainbridge asks what's the conservative position on importing drugs from Canada.
"shouldn't the conservative position be one of promoting markets and individual choice by allowing foreign drug sources to compete for the dollars of US citizens?"
I'd certainly agree with him if in fact we were talking about "foreign drug sources" but we're not. Here we are talking about American drugs being sent to Canada and then Americans buying them back. Wait a second! Why would we do something like that? Think about it. In a normal rational world it would make no sense to make a drug in say New Jersey, ship it to Windsor, and then ship it back to New Jersey. But we don't live in a normal rational world. We live in a world where Canada imposes price controls on drugs.
From an economic point of view reimportation is less about importing drugs than importing price controls. And I KNOW what the conservative position is on price controls.
Furthermore, as a libertarian I support the right of American drug companies to market their products in other countries under the condition that the drugs not be resold. This is common practice in many businesses. Airlines prevent people from reselling tickets. My university charges some students $20k and others $2k per year. It is perfectly within our rights to prohibit a student from enrolling at $2k and reselling the spot to someone for $20k. Similarly, it seems to me that it's perfectly ok for drug companies to sell to Canada (at their ridiculous price controlled prices) under the condition that they not be resold to the U.S.
P.S. I've noticed a lot of my students are buying cheap international editions of American textbooks. I got on them a bit about this too.
UPDATE: A reader wrote in with this, "I don't know about the reimportation of drugs equaling the reimportation of price controls. The analogy between a spot at Capital and drugs isn't complete, because the spot at Capital doesn't move... it's more of a lease. Drugs, once they are sold, are gone: if we are transferring property rights then the right to re-sell must be included, right?"
My reply: In a private property rights regime buyers and sellers may contract in any way they see fit. In this case, the drug sellers want to impose a contractual condition on the buyers that they not resell the product. This is not inconsistent with liberty. Indeed to prohibit this sort of contract would be inconsistent with liberty.
Consider another example: Suppose Coca-Cola wants to secure a contract to supply pop [we are in the midwest so it's pop] at Ohio State University. OSU, being big and having some degree of market power, is able to secure a low price on the Coke products supplied by the firm. But Coke also wants to sell to nearby High St. businesses at its usual retail prices. So it gets OSU to agree contractually not to sell Coke off-campus. Now, suppose Coke decides to buy up lots of Coke products at the low prices and then resell to High St. businesses thus undercutting Coke's own position on High St. Clearly OSU has violated the terms of the agreement and this should not be permitted. I argue the drug case is very much the same.
So my position is not against reimportation per se. It is against reimportation when such reimportation violates the contractual terms of the sale. Also please note that my argument against reimportation is based on contract theory not public policy grounds. I do reject the FDA's ridiculous argument that only THEY can determine what drugs are safe.
Interested in finding out more about reimporting drugs from Canada? Visit the Flint Hills homepage to find out about our upcoming luncheon on the subject featuring Sally Pipes of The Pacific Research Institute: http://www.flinthills.org
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