Using Price Regulation Instead of Competition to Reduce Prices after Patents Expire
41 Pages Posted: 17 Oct 2019 Last revised: 3 Aug 2020
Date Written: October 8, 2019
In limiting the patent term to twenty years, Congress sought to use competition to make patented products available to the public at low prices once inventors have reaped the fruits of the exclusivity provided by the patent grant. But competition has in practice proven an unreliable method of achieving low prices for off-patent products. Patentholders reap supra-competitive profits, and consumers pay supra-competitive prices, long after expiration of the patent term. That is because, as antitrust scholars recognized decades ago, the primary effect of competition is not to drive down prices but to stimulate innovation. Congress should stop relying on competition alone to drive down off-patent prices and instead give the U.S. Patent and Trademark Office authority directly to set the prices of off-patent products equal to marginal cost.
Keywords: patent, price regulation, rate regulation, antitrust, monopolization, first-mover advantages, advertising, due process
JEL Classification: L43, L50, O34
Suggested Citation: Suggested Citation