Consumer Protection, Incentives and Externalities in the Drug Market

Abstract

The purpose of this paper is to analyse the influence of the requirements of prescription for ethical drugs on the position of the different participants in the drug market (D.M.). The consequences, intended and expected, of enforcing regulation introduced to protect the ignorant consumer, namely prescription requirements for a growing share of drugs, are—as the paper demonstrates—not achieved. It is well known that the ignorance of the consumer is of special importance for the structure of the D.M. It is also well known that the pharmaceutical industry has an exceptionally strong position in the D.M. When examined, the protection of the consumer proves to be, first of all, not a protection of the demand (the consumer or patient) but a special legal framework for protecting the physician and the pharmaceutical industry. The incentives for the physician and the pharmaceutical industry to monopolize information and knowledge in respect to ethical drugs are strengthened. The additional introduction of a social sickness insurance scheme or a national health service turns out to fortify the monopolistic positions of the physician and the pharmaceutical industry, induced by present consumer protection. The position of the consumer is thus further weakened. The guarantees of quality and safety are imperfect, the economic interests of the consumer disregarded. The intention to achieve a reduction in social costs results in additional social costs.