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National Regulation and International Industry Structure in Pharmaceuticals

This paper looks into various means of regulating pharmaceuticals and their effects on the structure of the international pharmaceutical industry. Regulation adds complexity to the activities of a firm. This complexity is multiplied, if different countries apply different sets of regulations. High complexity furthermore is a major driver of fixed costs for an industry and thereby a factor for industry concentration. High industry concentration leads to reduced competition which in turn gives rise to a tendency toward slow innovation and higher prices.I argue therefore that, as internationalization of industry activities proceeds, national regulation aimed at reducing costs for pharmaceuticals can have the unintended effect of leading to higher drug prices in the longer run, thereby compromising the original goal.