Patent system doesn’t facilitate monopolization inflation – pharma is an outlier

[Ling Zhou, Ecole polytechnique federale Chair of Innovation and IP Policy, 4iP Council, “Patents and Supracompetitive Prices: Evidence from Consumer Products,” , accessed: 7-11-24, ES]

The theoretical literature assumes that monopoly over an invention translates into ability to charge supra-competitive prices in the product market. However, it is not clear that this is the case. For instance, competitors could invent around the original patented invention and offer a product that looks very similar to the end consumer, thereby breaking down market exclusivity. The inability to exploit patented inventions to charge monopolistic prices would undermine the effectiveness of the patent system for incentivizing innovation.

To the best of our knowledge, empirical research on the effect of patents on product prices has been limited to drugs. Yet, many observers would agree that drugs offer a very favorable setup for testing the effectiveness of patent protection. First, the active ingredient patent is the drug—the patent and the product are, therefore, virtually the same. Next, the costs of drug innovation are very high whereas the costs of imitation are comparatively low, making the industry prone to free-rider problems and patent protection all the more relevant. These arguments help explain why patent protection is particularly effective for the pharmaceutical industry compared to other industries (Mansfield,1986; Levin et al.,1987; Harabi,1995; Cohen et al.,2000). But the patent system has not been designed for drugs alone; innovators across all technology fields exploit it. Despite the centrality of the monopoly pricing hypothesis for justifying the existence of intellectual property rights, evidence on other industries is scant.