Your logic would be fine if manufacturers were required to replace expired pills with new ones. But they aren't, so early expiry dates impose enormous economic costs on consumers of drugs, while manufacturers get the massive benefits of selling drugs twice to same consumer.
If lots of manufacturers were all manufacturers, this article wouldn't have been written. In truth, the vast majority of expensive drugs aren't being replaced by distributors or manufacturers, or the Shelf Life Extension program for the government would not be saving $2B a year.
And don't blame the victims, which is what your sentence on inventory management does. If a hospital over-estimates patients usage of a drug and gets stuck with expired drugs due to excessively shortened expiry dates, that's on the maker. The maker knows the real expiry dates, usage can never be anything but an estimate.
I would suggest you read up on the Shelf Life Extension Program. It's a specific program around either limited use products or products where the gov't hold such large stockpiles that companies won't take returns, it just wouldn't make sense. The most likely scenario is one where the products are never used.
I had a friend who worked on the federal Tamiflu stockpiles. The gov't and the manufacturer have a deal where the gov't gets a significant rebate on unused product that is either put back into circulation or the manufacturer buys it back and destroys it.
Remember, the gov't has companies competitively bid on manufacturing these products (particularly for generics which were most of the examples in the article). Is the company going to give a 100% money back guarantee if it's not used? Would you? I wouldn't.
So yes, there are certain scenarios (stockpiling) where manufacturers don't take back product. That's not most scenarios.
Most scenarios are hospitals holding 30-45 days on hand of product. If they screw up their inventory they should pay a penalty not the manufacturer.
No it's not. Essentially you are saying it's ok to have an "expiration tax" and that it doesn't change the market. I'm saying the expiration tax does change the market, and raises the cost for the consumer, even if it's factored into their purchase. Typically consumers don't have the ability to substitute complements, and manufacturers products are patent protected, so it's another way to raise prices and increase manufacturer profits.
I explicitly point out in my original comment that this applies for monopoly markets! To spell it out in gory detail: in a simple monopoly, the price is that which maximizes the supplier surplus for a given demand curve, and the demand curve will be proportional to probability that any single pill is consumed. If you have a more complicated model, then by all means explain it to us, but do not just assert the contrary with no explanation.
