Durand, Benoit --- "COMPETITION LAW AND PHARMA: AN ECONOMIC PERSPECTIVE" [2019] ELECD 1267; in Figueroa, Pablo; Guerrero, Alejandro (eds), "EU Law of Competition and Trade in the Pharmaceutical Sector" (Edward Elgar Publishing, 2019) 1

Book Title: EU Law of Competition and Trade in the Pharmaceutical Sector

Editor(s): Figueroa, Pablo; Guerrero, Alejandro

Publisher: Edward Elgar Publishing

Section: Chapter 1

Section Title: COMPETITION LAW AND PHARMA: AN ECONOMIC PERSPECTIVE

Author(s): Durand, Benoît

Number of pages: 34

Abstract/Description:

This chapter sets out some of the most important aspects of competition in the pharmaceutical industry. In particular, this chapter highlights the crucial role of R & D and innovation, which shape in large parts the competitive process in this industry. This chapter then focuses on three competition issues that have been at the centre of competition law investigation. First, in the pharmaceutical industry there is a tension between the short-term benefits of price competition and the long-term benefit of innovation. Price competition leads to lower prices which immediately benefit consumers. However, as profits are eroded, this reduces the funds available for R & D as well as the incentive to finance it. In this context, by prohibiting any practice that restricts generic entries, competition authorities have contributed to lower prices but perhaps at the expense of R & D activities. Second, there is a tension between the price setting of medicines, which varies across Member States, and the objective of market integration in Europe, which is supported by the principle of free movement of goods. Again, competition authorities have banned any restriction of parallel trades, however, there is little evidence that this has benefited consumers and innovation. Third, assessing the existence of market power, which is the primary focus of competition law investigations, requires—as in other industries—a thorough examination on the facts of each case. In the pharmaceutical sector this cannot simply hinge on whether originator companies are protected by patents. In fact, it appears that hospitals that negotiate directly with manufacturers can obtain better prices than national health insurance organisations. This is because hospitals may be able to influence doctors and recommend medicines, in particular when they have a choice between patented medicines that can be used to treat the same illness, and naturally when there is a generic version of the originator’s product.