Medicine Pricing, Optimal Patent Length and Social Welfare

Abstract

Social welfare, the ultimate pursuit of medicine patent protection, is affected by multiple market and government factors. This paper constructs a multi-stage dynamic sequential game model involving the government and medicine enterprises and integrates various market and government factors into account. Next, the social welfare of monopoly pricing and government pricing are compared, while the optimal length and its correlations with the influencing factors are determined for medicine patent. It is concluded that the optimization of medicine patent length is a complex decision-making process; the optimal patent length is affected by pricing mode, government subsidy, market demand elasticity, R&D investment, marginal cost, product lifecycle and discount rate. The government should determine medicine patent length according to local conditions, rationalize medicine pricing mechanism, and develop a competitive medicine market.