Question

A patent is an exclusive right granted by the government to the inventor of a good, service, or productive process to produce, use, and sell the invention for a given number of years. Suppose a pharmaceutical company just invented a vaccination for the coronavirus and applied for patent protection by the government.

1.Can you think of two sources of inefficiency related to a patent on this vaccination? Briefly explain.

2.If such a policy causes inefficiency, why does the government still maintain the patent policy?

Answer 1

1. The two sources of inefficiency arising out of this patent on vaccination is:

• Lack of competition to enter the vaccination industry will lead to lower availability of vaccines and higher prices
• Consumer welfare will reduce as consumers will be exploited for higher prices of such an important vaccine. Those who cannot afford it would have their lives at risk, despite the vaccine being available

These are the two inefficiencies arising out of patents on vaccination.

2. Despite the inefficiency, government still maintains the patent policy in order to motivate and incentivize firms to indulge in R&D and develop the vaccine in hopes of high profits and large market share.

In the absence of patents, firms will have no incentive to engage in such time and money consuming research activities.