A couple of the previous responses are in the ball park, but the
notion that drug prices are high to pay for the expensive ads is
bass-ackwards. The money spent on advertising is what MAKES POSSIBLE
the high prices. In simple terms, a firm spends one buck on ads and
raises the price by two bucks.

It is Bayer's advertising that cons consumers into spending about five
times as much for Bayer aspirin as they would have to spend to buy
generic or private label aspirin which is identical.

What's going on with the prices of Canadian drugs is known to
economists as "pricing discrimination" but is popularly called
"dumping."

When US drug manufacturers sell drugs in Canada at prices lower than
in the US, it is essentially the same in principle as renting hotel
rooms in Miami at lower rates in July than in January, or letting kids
into movie theaters at lower prices than adults, or letting tourists
(who can plan head and buy tickets early) on the airplane for less
than businessmen (who need to go NOW) are charged.

It has to do with what economists call "elasticity of demand."
Businessmen MUST get to Tokyo tomorrow to close a million-dollar deal;
they will pay what it costs. Their demand is INelastic. Kids have
less money than adults (at least when I was a kid); their demand for
movie tickets is ELASTIC.

Production costs are minimized when the firm produces at "capacity,"
which is not the maximum amount that can be produced, regardless of
cost, but that level of output at which unit costs is minimized. (That
is usually less than the greatest amount that can be produced.)

That quantity cannot be sold at the price that maximizes profit. So
rather than sell at a lower prices, which would increase quantity sold
but reduce profits, the remainder is sold in other countries. The
price in each country is set to maximize profit on sales there.
Personal income levels in each country are an important factor in
estimating that price. In simple terms, the richer the country, the
higher the price.

So US drug firms are not losing money by selling drugs in Canada at
reduced prices, they are INCREASING their profits.

Most of the private label products you see in the supermarket and
other stores are made by the same firms that make the higher-priced
"national brands." Sometimes, both the private labels and the
national brands are made by some small firm you never heard of.

For example, Mylan Pharmaceuticals and Barr Labs make drugs for
various "big name" firms.

This information is available if you know where to look. I have a
copy of the *Pennsylvania Formulary*, which lists all prescription
drugs licensed for sale in PA, along with the name of the
manufacturer.

Of some 85 brands of erythromycin stearate listed, under many
nationally advertised names and some as generic, all but a handful are
made by Mylan and Barr. All 27 brands of brompheniramine maleate are
made by one firm--National Pharmaceuticals.

The reason is that it makes economic sense for one or a few firms to
set up to manufacture a drug in large quantities and sell it to the
others, whereas it's inefficient and costly for each firm to set up to
manufacture a small amount.

It's the advertising that causes consumers, and physicians, to think
there are differences and that some are supeior to others.

(The gullibilty of MDs to drug company promotions is so scary I won't
take time to mention it here.)

I hope this is clear enough. It takes several class periods to teach
this to economics majors, so this is pretty sketchy.

And the drug companies keep selling to them. I doubt they're taking a
loss on the deal.

I hope I've shown they do not. But they would PREFER you pay the
higher US price.

This implies that the drugs are made here, sold to Canada,
and then come back here.

Exactly.

So why should they be dangerous? Do they have special factories that sell
substandard medications to Canadians?

No. It's cheaper to make the same drug for everyone than to make a
"different" drug for Canadians.

There MAY BE, however, some risk of buying from a fly-by-night
internet firm that is selling counterfeit drugs. You run the same
risk buying from US internet sellers, too.

Drugs from Canada are no more "dangerous" than drugs from a US firm.
But the FDA is "friendly" to US drug manufacturers and so it puts out
that propaganda.

If you want to know more, read _Pills, Profits and Politics_, by
Milton Silverman and Phillip Lee. They are professors of medicine and
pharmacology who both have long experience with the regulation of the
drug industry.

Another good source is _200,000,000 Guinea Pigs_, by John G. Fuller.

Hope this helps.

vince