One model is that a government pays a license fee that allows them to produce the drug in unlimited quantities for their country. (In practice, they could buy the drug from the manufacturer at the marginal cost, or they could use another pharmaceutical company as a subcontractor.) Sometimes there is a deal, and the country may get orders of magnitude higher health benefits for a marginally higher price. And sometimes the company refuses, because the deal would interfere with their business model in other countries.
The same way as in any other business contract. How much the government is willing to pay, how much they expect to benefit, what other uses they have for the money, and so on. In practice, the company will likely get a bit more profit from the license fee than it would get from selling the drug normally.
The government is effectively a monopsony in that context, so that isn't a real way to calculate anything, it's just the government making up a number which is likely to be too low (suppressing R&D) or too high (inflating costs). You could potentially fix the first one by giving the company the option to decline and instead sell the drug under the existing system, but how do you fix the second one?
In general, anything that's mandatory for life/basic quality of life but still needs to be produced by industry should should be regulated to artificially reduce prices in order to compensate for inelastic demand and prevent price gouging. This regulation should include supply-side subsidies and dynamic, carefully considered price controls.
This should apply to food, water, housing, health care, transportation, internet; all those good things that you can't do without and are extremely vulnerable to market manipulation.
First, define the "basic quality of life" and what are you going to do when demand will exceed supply. Because we might as well just start the money printing machine and expect everyone to become a billionere.
Off the top of my head I'd include the following in basic quality of life (but not fundamental ability to live) these days:
* A little extra space in your dwelling
* Internet
* Access to nature
* Hot water
* Some means of transportation that grants you access to work, home, and recreation
* Leisure time beyond that needed to cook, clean, sleep, and exercise
* Some dietary variety
* Any functioning smartphone
* Access to community
* A modest amount of extra money for recreation
* Any vacation time
* Access to heat/cooling beyond the bare minimum
* Access to education
* More than one choice in a job
* A bed that doesn't hurt you
The list could likely be trimmed or made narrower, and there are likely things I'm not thinking of, but you get the idea. Nothing extravegent or necessarily expensive, just a few things beyond the absolute bare minimum a human needs to survive. Basically, I think everyone should have access to three major things:
1. The necessities of survival
2. A few extras to allow the unmotivated and unambitious to be sustainably content and not truly miserable from true deprivation (so, like, evaluate human needs the way a modern ethical zoo evaluates animal needs rather than a historical abusive menagerie would).
3. Access to tools and resources for the sufficiently ambitious to reasonably improve their situation without making excessive sacrifices from point 1 or 2.
Does any of that strike you as unreasonable or unachievable?
That's right, which is why basic healthcare (including production of normal, well-characterized, non-experimental drugs) should be taken out of the price system altogether and run directly by the government.
Normal off-patent drugs are already pretty cheap. You can get a bottle of ibuprofen for like $5. Drugs still under patent are, of course, expensive on purpose.
Describe the operation of "anti-gouging regulation" that isn't just a price ceiling or a cap on how much the price can increase in response to a sudden supply constraint that would otherwise result in a shortage.
Using the free market to respond to a shortage requires competition. Patents can make this impossible. When you have a fixed supply of something and no other entity can produce it having an uncapped price doesn't really help the market respond. Consider the example of a Taylor Swift concert. Are scalpers creating more supply by raising the prices of tickets or is it pure rent seeking?
And, to many, the difference between "expensive bread" and "no bread" in the case of drugs is entirely academic.
Products under patent would already be charging the monopoly price regardless of a shortage. That's what a patent is supposed to do -- cause prices for new drugs to be temporarily high to provide the incentive to develop new drugs. The limit for this is how much better the new thing is than the old thing, such that if you charge more than that people switch back to the old thing.
This obviously kind of sucks when the drug is the difference between life and death, but those are also the drugs we most want a large incentive to develop, and that's why the patents eventually expire.
> Consider the example of a Taylor Swift concert. Are scalpers creating more supply by raising the prices of tickets or is it pure rent seeking?
Scalpers are trading time for money. You want tickets that would otherwise sell out but you don't want to wait in line, so you pay someone to wait in line for you. It causes tickets to be available at the higher price instead of being sold out and unavailable at any price. The way to prevent the rent seeking is to auction off the tickets to begin with so the money goes to the artist instead of the scalpers.
