A Look at The Role of Patent in Creating Monopoly

Patents create a monopoly because only one company or individual is able to produce a product. This prevents other producers from entering the market. This concept is especially restrictive when the demand for the product is inelastic; if the product does not have substitutes the monopolistic producer is able to set a price that may not be affordable for the consumer.

When the patent runs out other producers are able to enter and exit the market freely, this creates competition within the market. Substitute products are now available to the consumer and the market can naturally set an equilibrium price.

The pharmaceutical industry is a great example of this concept. When a drug is released into the market with a patent only one company is able to produce it. If this drug is necessary for the consumer their demand is inelastic and they must pay the set price the company determines. When the patent runs out the drugs may become available in generic form. If the original owner of the patent gets a pay for delay deal, although these are sometimes shut down by the US court system, the company will continue to produce the drug as a monopoly.

These pay for delay strategies effect consumers negatively because the market cannot reach an equilibrium price; the consumers are forced to pay for a product that they cannot afford. The monopolistic company is taking advantage of the consumer’s inelastic demand for the drug and exploiting consumers that need a product.

In my opinion this pay off strategy should be outlawed. It creates a system that exploits the sick and elderly and keeps the health care industry from progressing. Drugs should be widely available and keeping the price high is unethical. Drugs should be set at an equilibrium price just like many of the other goods consumers need on a daily basis. Pharmaceuticals are not luxury goods and the United States economy should not treat them as so.