Award Winning Blog

Friday, April 7, 2023

The Highly Questionable Assertion that Regulation Stifles Innovation

             Big Pharma and Big Telecom endless repeat as gospel truth the highly questionable assertion that government oversight stifles innovation.  Facing the prospect for Medicare administrators, newly authorized to negotiate or even set caps on the prices of a very few drugs, Big Pharma has launched an outreach offensive stating as a given that such action will "stifle innovation" and "harm consumers." See, e.g., Tomas J. Philipson, The Deadly Side Effects of Drug Price Controls, The latest Medicare guidance will stifle pharmaceutical innovation—and it’s worse than we thought, WALL STREET JOURNAL (April 5, 2023); available at:

             Big Pharma's big fib reminds me that Big Telecom uses the same gambit.  In the case of telecommunications, incumbent carriers swore that mandatory network access neutrality would stifle innovation and reduce capital expenditures in new technology.  Some of their favorite legislators, now obsessed with mandating "fair treatment" by social media, conveniently forget about their virulent opposition to nondiscriminatory broadband network access.

             Does innovation disincentivization pass a reasonable person's "smell test."  Successful incumbent ventures will scrimp on developing and bringing to market new products and services, because the Big Bad Government acts in ways that might constrain upside profitability?  Incumbents simply will conserve capital and scrimp on research and development, apparently content to squeeze out profits from prior investment in now aging innovations?

             Does this strategy make any sort of business sense, particularly for industries that reward innovation with government-conferred monopolies in the form of patent protection and limits to competition?

             I concede that a tougher environment for price gauging does create new incentives, such as redoubled efforts to extend the patent monopoly of a soon expiring drug by reformulating it to provide extended release, or to coat it with something to reduce the risk of stomach distress.  Similarly, I can see how the potential, for harm to innovation, exploits anxiety about any adverse impact on global market share in industries with national security risks, such as telecom, broadband, and computer chips.

             On the other hand, does can anyone seriously claim that commercial ventures will deliberately handicap their future marketplace competitiveness and ability to introduce faster, better, smarter, and possibly more expensive new drugs and telecommunications services? If you believe that, then explain to me why wireless carriers plan the deployment of next generation networks, year end and year out, without regard to which political party has more FCC Commissioners and whether network neutrality obligations apply.

             Is 5G wireless the last innovation we can expect from Verizon, AT&T, TMobile, and Dish?