Price fixing, in simple terms, is a form of price collaboration that occurs when market participants agree to increase, lower, or stabilize the prices to increase their profit margins. Price fixing has many ill-effects on the customers and the sanctity of the market and is illegal under the American antitrust law. It is especially troubling in the context of the drug market.
The landmark Drug Price Competition and Patent Term Restoration Act, 1984, commonly known as the Hatch Waxman Act established a generic drug market. These drugs have the same ingredients and are as safe as their brand name equivalents but have lower. At present, about 90% of the prescriptions within America are filled up with generic drugs. This has resulted from years of policymaking that focused on creating more competition in the drug market.
There is no governmental control on drug prices in the US instead, it relies on free-market competition to exhibit the required control. The introduction of generic drugs has helped to achieve the same. More the number of generic drugs in the market, more the competition, and lower the prices.
Generic drugs have played a significant role in regulating prices and have benefited the average American consumer. However, the low prices mean slimmer profits for the makers of these drugs. This, in turn, makes the prospect of price fixing appealing to them. Multiple cases of price fixing in the drug market have been identified over the last few years.
It is troublesome as it includes the major generic drug manufacturers. These generic drug makers colluded and artificially increased the prices to increase their profit margins.
Impact of Price Fixing and Drugs
The impacts of price fixing, especially that of drugs are as follows:
Price fixing disrupts the normal flow of demand and supply.
It creates a monopoly of those who conspired and gives them an edge over other market participants.
It drives away competition from the markets, which takes away any incentive from the involved businesses to be innovative or satisfactory to their customers.
It deters other businesses from gaining their market share.
It leads to an excessive price rise for the customers and makes certain goods or services inaccessible to a section of society.
Price fixing in drugs is dangerous as it can lead to the inaccessibility of life-saving drugs.
It is a huge violation of the customerâ€™s trust and violates the social contract between the patients and the pharmaceutical companies.
Violation of Law
Business collaboration is prohibited under the state as well federal competition laws. It is an agreement between two or more businesses to create a monopoly and prevent other businesses from participating in a free, fair, and competitive market by employing fraudulent means.
Price fixing is a form of business collaboration and is violative of the U.S. antitrust law provisions. This has been the case ever since introducing the Sherman Act of 1890 that prohibits competing individuals and businesses from fixing prices, dividing markets, or rigging bids.
Price fixing is said to violate U.S. competition laws because of its anti-competitive nature. When two businesses conspire to fix prices, they hurt the consumers and other businesses within the same market. Such price fixing creates a monopoly in the market of those businesses that agreed to fix the prices and drives away the free and fair competition.
The violation of the antitrust laws by price fixing can either be implied or express. It can be prosecuted as a criminal violation under the Sherman Act, 1890. It can also be prosecuted as a civil violation under the Federal Trade Commission. Apart from the federal laws, price fixing can also be prosecuted under the various antitrust laws of the different states.