“The main constraint on prices in Europe is that the buyers have monopsony power. Changing what America pays will not alter the demand side of the equation. European governments might realizing that they have been free riding on our drug payments, and decide to raise the prices that they pay in order to support more R&D. But the political incentives all run the other way, and I see no evidence that the EU governments are excited about spurring private sector innovation by offering high profits on life-saving drugs. So the most probable outcome of introducing monopsony power here is that the market for drugs shrinks to the point where it will support few-to-no new drugs. This result will be sufficiently removed in time from the decision to monopsonize purchasing that the politicians will escape most of the responsibility. And even if the public realizes that it has forgone future discoveries for the sake of a few dollars now, and wants to undo this, the fact that everyone is monopsonizing will make it difficult to enact such a change: no one wants to be the patsy, even if they themselves are made better off by paying higher prices and getting new drugs in return. Witness the insistence on multilateral trade deals, even though all the evidence suggests that unilaterally lowering your trade barriers makes your nation unambiguously better off.” — Megan McArdle, on pharmaceutical drugs and what switching to a european style healthcare system would do to innovation…more here.