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Loving you is like a bad medicine: not to mention the pharmaceutical benefits scheme ...

Article Excerpt
Australia's Pharmaceutical Benefits Scheme (PBS) is acknowledged world-wide as providing Australian taxpayers with access to some of the cheapest pharmaceuticals in the world. One of the principal reasons for the effectiveness of the system is its heavy reliance on the monopsony (single buyer) bargaining power of the Australian Government when negotiating with large pharmaceutical drug companies.

Economic text books and Coalition Government policies are full of references to the efficiencies of 'perfect competition'. In the real world, however, market power plays more of a role in the setting of price than does the assumption that markets have infinitely large numbers of buyers and sellers, none of whom has any individual bargaining power.

When a seller has substantial market power because there are only a few suppliers and they don't sell perfect substitutes for each others' products, as is the case in the pharmaceutical industry, individual buyers are likely to end up paying a higher price than they would in a perfectly competitive market. As a society we can either grin and bear such inflated prices, or we can achieve some 'countervailing market power' by electing the Government to act as a buyer on our behalf....