Competition Commission sides with pharmaceutical wholesalers against consumers

If ever there was an example of efficiency in action it is in the operations of International Health Care Distributors (IHD), a company that has recently been declared by the Competition Commission to be acting anti-competitively. The Commission found that the IHD operations, which consist of the distribution of pharmaceuticals directly to retail pharmacies and other customers, “lessen competition” and that IHD is “involved in fixing trading conditions and prices, and abusing its dominant position.” The Commission recommended a fine, which could be as much as 10 percent of turnover, as well as a requirement that IHD make its products available to all customers on the same commercial basis.

Predictably, IHD’s competitors were the complainants in the case. Consumers are seldom, if ever, complainants in antitrust or competition cases, especially where a supplier is said to be “abusing its dominant position”. In ordinary language this term generally means that the competitors can’t compete with the accused supplier and have asked for protection from the government agency that implements the legislation. If the agency (in this case the Competition Commission) grants the protection, the consumers sooner or later have to pay higher prices. Competition law is based on suspect economics and consumers will benefit considerably when the legislation is repealed and no longer available for the protection of less efficient competitors.

American economist Dominick Armentano, the author of Antitrust and Monopoly: Anatomy of a Policy Failure has been arguing for decades that antitrust legislation is anti-competitive and he is receiving support from an increasing number of his fellow economists. Concerned about a growing number of antitrust cases instigated by rival business firms, 240 distinguished economists in June 1999 signed an open letter to former President Clinton calling for an end to speculative antitrust enforcement efforts.

The open letter was prompted by a spate of antitrust actions against such companies as Intel, Microsoft, Visa and Mastercard. It said in part: “Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new products and innovations. High technology markets are among the most dynamic and competitive in the world, and it is a tribute to open markets and entrepreneurial genius that American firms lead in so many of these industries. But, these same developments place heavy pressures on rival businesses, which must keep pace or lose their competitive races. Rivals can legitimately respond by improving their own products or by lowering prices. Increasingly, however, some firms have sought to handicap their rivals’ races by turning to the government for protection.” The letter pointed out that such antitrust efforts, based upon speculative rather than actual harm to consumers, “short circuit” market forces and replace consumer choices with bureaucratic and political decisions. The letter, sponsored by The Independent Institute, appeared in The Washington Post and the New York Times. (See http//www.independent.org/tii/news/open_letter.html) In a recent article Armentano wrote “If we can’t abolish the absurd and archaic antitrust laws, the best we can do is leave their administration to those who understand their sad history and their own regulatory limitations.”

IHD uses high technology to record, monitor, control and pack pharmaceutical products for various manufacturers and the firm is undeniably very efficient. Distribution costs are reduced because of various efficiencies, not least of which is the fact that retail pharmacies and other customers receive the products of several firms in a single package. What is noteworthy is the co-operation that exists between otherwise rival firms. In competition parlance this would be described as “collusion” which is a peculiar “cloak and dagger” type of word to use in describing a very ordinary, voluntary and peaceful business activity that is beneficial to both the customers of HID and the end consumer.

The pharmaceutical firms involved in IHD are to be rewarded for their efforts to provide the best possible service to their customers by being hounded by the Competition Commission and the Competition Tribunal. Is this really a proper function for government to perform under the rule of law? Should a government agency be protecting pharmaceutical wholesalers that are complaining about business lost because pharmaceutical manufacturers have found a better and more efficient way of delivering their products to their customers? I think not.

There is no legitimate economic function for an agency that has been set up to improve competition, other than to remove all government-created barriers to entry into business and hindrances to more efficient methods of doing business. This would include barriers that prevent foreign firms from competing in local markets. In carrying out its deregulatory mandate such an agency would have to pay close attention to property rights, which should be the ultimate determinant as to who should be allowed to do what with a product. Who, for instance, owns the products that IHD distributes? Is it not the prerogative of the manufacturers, as owners, to decide by whom and in what manner the products should be distributed?

Source: Eustace Davie, is a Director of the Free Market Foundation. This article may be re-published without consent but with acknowledgement. The views of the author of this article are not necessarily shared by the members, council or patrons of the Foundation.