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Any time news breaks of a company dramatically increasing its prices, particularly when it appears to have complete ownership of a crucial product such as medicine, predictable cries of “the free market failed” echo throughout the pundit class and spread like wildfire via social media. The trouble with this knee-jerk reaction however, is that a rudimentary amount of digging reveals the source of the problem: government-granted monopolies that ban legitimate market competition.

As James Peron, President of the Moorefield Storey Institute wrote at Huffington Post:

“One story that has everyone outraged is that of Turing Pharmaceuticals, run by a scoundrel — by all accounts — named Martin Shkreli. He took the price of the 62-year-old drug Daraprim, used to treat toxoplasmosis in HIV patients, and raised it to $750 a tablet.”

Peron is right to cite the outrage. It’s all over Facebook and Twitter, coming from individuals who, not wrongfully given the hype, attribute the situation to a greed that can allegedly, only be fueled by a market economy. We’re at the point with this particular instance where Hillary Clinton, who supports the kind of big government corporatism that grants the monopolies in question, has jumped on the outrage train.

Clinton, like most politicians, wants to “solve” a problem that stems from an unjust granting of government monopolies with, you guessed it, an even bigger government monopoly. Peron continued:

“The patent on Daraprim expired long ago. So what prevents others from selling this drug? The free market? Surely, other companies are also greedy and would be willing to sell the drug at half the price as Shkreli. Others would find they could make a hefty profit at 10 percent. The price of Daraprim would soon decline to what it is in the rest of the world. Outlets in Canada, the U.K. and South Africa sell it for between ¢50 and $1.50 per tablet, not $750.00.”

Interesting. So what’s going on in the United States? Peron notes:

“It appears that Mr. Shkreli is one of those regulatory ‘entrepreneurs’ using the power of the state to manipulate things in his favor. It has been alleged his investment fund shorted various pharmaceutical stocks and then filed complaints against the companies with the Federal Drug Administration, thus causing an investigation. The investigation would then negatively impact the price of the stock, and Shkreli would profit.”

Why is this possible? The labyrinth of corporatist regulations and market restrictions, enacted by the very politicians allegedly outraged by the results of the system they’ve implemented, favors people like Shkreli. All the while, legitimate entrepreneurs can’t compete, thanks to laws built to favor certain politically connected corporations over others.

Derek Lowe, writing at Science Translational Medicine, aptly explains what’s going on:

Companies do (and should) have the right to charge what they think their market will bear. But ordinarily, you’d think that most markets wouldn’t have enough slack in them for a price increase like that one. What we’re seeing is a peculiar part of a generally peculiar market, though. Drug companies are granted a temporary monopoly by the patent system …. One feature of the existing order is that patents expire (and you’d be surprised how many loud anti-pharma activists don’t seem to realize that). And once they expire, the price comes down as the generic manufacturers get into the market ….

…. That’s how it’s supposed to work, anyway. But in recent years, another strategy has emerged …. Entire companies have sprung up to take advantage of this sort of leverage – not by discovering their own drugs …. but by buying up existing ones. And the most egregious examples have come in the generic sector. By various means, old generic compounds have ended up as protected species, and several companies have made it their business to take advantage of these situations to the maximum extent possible….

…. The FDA grants market exclusivity to companies that are willing to take ‘grandfathered’ compounds into compliance with their current regulatory framework, and that’s led to some ridiculous situations … (Perhaps the worst example is a company that’s using this technique to get ahold of a drug that’s currently being provided at no charge whatsoever). There are also loopholes that companies are trying to exploit when competitors try to prove generic equivalence: whatever it takes to keep competition away and get unlimited pricing power.

This system is quite literally, the opposite of a free market. A government agency is granting exclusivity to politically favored companies, and through this monopoly enacted by force of law, banning the type of market that would yield lower-priced alternatives.

So the next time you hear capitalism being blamed for this type of scenario, make sure to politely remind the offender that corporations are empowered to behave this way precisely because the government bans their would-be competitors from entering the market in the first place.

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