Becker on Canadian Drugs

Gary Becker points out that if individuals and gubmnts in the U.S. keep trying to buy cheap drugs in Canada, the prices here will start rising:

State governments [sic] and other groups are exerting great pressure to allow imports from Canada and online pharmacies, where drugs are much cheaper. But Canadian drug prices are cheap in good part because they impose price controls. In essence, Canada (and most other countries) free ride on the profits collected from the higher prices in the American market. The U.S. could also impose price controls if it wanted to do so, but these would be counterproductive because they would discourage discovery of new drugs. Moreover, if many drugs begin to be reshipped from Canada, drug companies would cut the amounts supplied to Canada, and prices there would rise. That is why Canada is beginning to crack down on online pharmacies that resell to the American market.

For the record, not only do Canadians free ride on U.S. pharmaceutical research, we also free ride on U.S. defence.