Antitrust and 'Big Pharma'.

• Author: Grennes, Thomas

The COVID pandemic continues to be a major global crisis. Reformers have observed that crises are opportunities for major reform, and they should not be wasted. Accordingly, some policymakers are calling for more aggressive antitrust action against large pharmaceutical companies. Rebecca Kelly Slaughter, acting head of the Federal Trade Commission, has complained of "skyrocketing drug prices and ongoing concerns about anticompetitive conduct in the industry." Such actions may have superficial appeal, but they are likely to have unintended negative effects that would make a bad situation worse.

Intellectual property rights and research

/ New products cannot be produced or distributed until they are invented. This has been illustrated by the rapid invention of COVID vaccines by BioNTech/Pfizer, Moderna, Johnson & Johnson, and others. The vaccines were the result of efforts by talented scientists who could not work without compensation and firms that would not have invested resources without the hope of returns on that investment.

The purpose of patent and copyright laws is to encourage the development of useful new ideas. Legal intellectual property rights are important for established pharmaceutical companies like Pfizer that have ongoing research, as well as for startup companies like BioNTech that are testing potentially breakthrough ideas.

Ozlem Tureci, co-founder of BioNTech, has emphasized the importance of being able to hire outstanding scientists from many countries, but her firm could not have attracted those scientists without paying them competitive salaries. Patent protection for pharmaceuticals is vital to that research, especially at a time when new varieties of viruses are widely expected to emerge. Moreover, Tureci believes the research that produced the COVID vaccine will have valuable future applications, including fighting cancer. Without protection for their intellectual property, firms not doing research could use the new ideas without compensating their producers, which would eliminate the payoff to research. By excluding "free riders," patents provide an incentive to spend on research.

Big Pharma / Populists oppose big businesses because they tend to equate "bigness" with market power. However, firm size is not a reliable indicator of monopoly. The technology of an industry may be subject to economies of scale in production, and the average firm in the industry may be larger than a typical firm in other industries. If...