The Anti-Competitive Effect of Price Controls: Study of the Indian Pharmaceutical Industry

Abstract

The objective behind imposing price controls on essential medicines is to ensure that the masses have access to these essential goods and services without prejudice. However, the prices of these medicines have significantly increased under price controls, defeating the purpose of the ceilings’ implementation. In this article, the author examines the reasons behind these price increases. In particular, the article examines whether price ceilings facilitate collusion in the pharmaceutical market of India. The scope of examination considers the effect of the ceiling on prices both before and after it was implemented. This is important because prices become significantly higher in a cartelized market, thereby preventing the masses from being able to access essential, life-saving medicines. After examining studies of individual drugs and common market tendencies, the author concluded that price ceilings do facilitate anti-competitive practices. This is due to the marketbased price ceilings providing a focal point for tacit collusion. This is especially true in pharmaceutical markets with market-based price ceilings due to the presence of strong intermediary association and monitoring, evidence of communication, and underutilization of capacity. Similar collusive behaviour has been observed in markets across China, the United States, and the United Kingdom. At the end of the article, suggestions to mitigate the effects of price ceilings and prevent the consumers from being harmed further have been enumerated. Tacit Collusion, Signalling, Cartelization, Pharmaceutical, India, Focal Point, Price Control, Ceiling, Market-based, Price-fixing