The structural dynamics of the pharmaceutical industry.” The Industrial Geographer 1(2

It is axiomatic that prescription drug prices are higher in the United States than Canada. While many politicians and consumer advocates consider this prima facie evidence of drug company greed, economists are less quick to judge. The monopoly offered by patents generates the profits that are necessary to motivate innovation. Still, the evi-dence is rather overwhelming that drug prices vastly exceed their marginal production costs. The existence of price controls in many nations creates an ex-aggerated version of price discrimina-tion in the pharmaceutical industry and this, in turn, offers a unique ability to directly measure the loss in effi-ciency that results from the market structure of this industry. We begin by offering prima facie evi-dence that pharmaceutical industry profitability is inefficiently high and continue by describing the Guell (1995, 1998) methodology for estimating pharmaceutical static inefficiency. We note that reducing static inefficiency, that which arises at the production-sale stage, comes at a cost of creating dy-namic inefficiency, that which arises when too little is invested in research and development. We proceed by noting that the Food and Drug Administra-tion’s ban on the re-importation of pre-scription drugs in the United States is an example of price discrimination that allows us to use Canadian controlled drug prices to function as an upper-bound estimate of marginal cost. We conclude by using these 2002 Canadian prices to update dead weight loss calcu-lations found in Guell (1995, 1998) in which the 1993 United Kingdom drug price data reported by the U.S. Con-gress’s General Accounting Office was used to create dead weight loss esti-mates. The Prima Facie Case There has been a great deal of concern in recent years about the rising costs of prescription drugs in the United States. The popular sentiment is that Ameri