All of that is before you even take into account how much it costs to re-tool your production line to make something different. Sure, you could lower the barriers to entry until they're barely existent and offer almost no consumer protection, but I'm not really sure we want to make it so easy that a company will spin up a production line to make a drug for 6 months while they think they can undercut the competition.
Then again, I'm a big pharma biologist, so I probably am a bit biased toward safety and large, slow movements.
Critics of this policy say that it would disincentive new drug development. That may be true, but for many people it doesn’t matter because they can’t afford them at current monopoly rates anyways, and our insurance industry is broken for them.
I wonder how you would go about researching a better patent-expiration scheme and the effects it would have.
Edit: maybe I misunderstood you- are you saying even with no patent protection, the barrier to entry is still high enough to disincentivize new entrants because of safety regulation and retooling costs? So patents aren’t the only roadblock, or not even necessarily the main roadblock?
I've never worked in generics, so I'm certainly not an expert, but I am saying both that we need some of the safety and quality controls by the FDA (or some system to replace them without relying on companies' good will) and that there are big hurdles even disregarding the FDA or other regulatory bodies.
But you can’t get at identical prices without communication between parties. Without communication, initial price setting is as if both companies make a bid in a sealed envelope.
It would be highly unlikely that both bids would be identical, and the lowest bidder with a price above $12.53 makes all the profit.
If the historical price is X, but I can charge 4X because people need the drug, let's charge 5X so I can make even more profit because demand is inelastic.
No, it isn't. The default strategy is not collusion. It's lowering the price to capture more of the market.
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
That's a misreading of Smith's point, but it's also irrelevant here, because it's quite a leap to assert that "the default strategy is to engage in blatantly illegal activity".
Collusion is illegal because it harms consumers, not because collusion is the "default strategy".
In fact, collusion is not the default strategy simply because it is not stable in the long term; there's a lot of research which demonstrates this.
for plausible deniability, the two companies typically don't directly talk to each other, but a lot of signalling happens via public statements and marketing channels to indicate a desire not to compete (as a simplistic example: raising prices when the competitor lowers theirs).