[nroach]

The disincentive to new entrants is that the existing market participants can always drop prices enough to make the new entrant unprofitable. If you're in a control of a monopoly or oligopoly, you monitor for signs of new entrants, and when they begin to raise or deploy capital, you offer to buy them out or drop your prices to unsustainable levels and wait for the new entrant to run out of capital.

[aeorgnoieang]

I'm sure there are other barriers as, if what you are describing is complete, one could earn a pretty riskless profit by some combination of (a) 'threatening' to become a new entrant in the market for an expensive drug; (b) stockpiling the existing entrants drugs when they drop their price to try to drive you out of business.

I remember reading a book about the history of some (famous) chemical company in the U.S. – Dow? Dupont? – doing exactly what I described to compete with the at-the-time existing German chemical company cartel.

[Symmetry]

For more regulated classes of drug the FDA doesn't just control the conditions under which it is made but also assigns production quotas to different manufacturers. The prime worry, I believe, is that if too much of a controlled substance is produced and it isn't sold then it might end up being sold illegally. There are also issues where allowing people to produce a drug willy-nilly would stretch the FDA's inspection capacity and allow the possibility of defective drugs being made.

Plus there's the issue of whether a drug can remain safe to use after long periods of time at all.