Against Antitrust Exemptions, H.R. 1946 Edition

Josh Wright —  31 March 2012

I testified Thursday on H.R. 1946, the “Preserving our Local Hometown Independent Pharmacies Act of 2011,” in front of the House Committee on the Judiciary Subcommittee on Intellectual Property, Competition and the Internet.  The Act, as implied by the title, would establish an antitrust exemption for smaller pharmacies.  The hearing lineup is available here.  My written testimony is available here.  The basic case against antitrust exemptions to allow price-fixing is pretty clear as a matter of economics — e.g. the Antitrust Modernization Commission strongly opposes such exemptions on both public choice and consumer welfare grounds.  As I discuss in my testimony, that case is made stronger in the health care context.

For more on the case against antitrust exemptions, see here, here, and here.

4 responses to Against Antitrust Exemptions, H.R. 1946 Edition

  1. 
    Henry G. Manne 1 April 2012 at 6:57 pm

    I bet that you would not object to all the pharmacies in a given PDP region’s merging into a new regional chain (with prices determined by the home office). If so, why would you object to their doing something that just involves one of the many possible anti-competitive effects of the merger, i.e. agreement on price? It also seems to me that the third party payer’s (Medicare, Medicaid) increased cost is totally irrelevant to this question. Those are not entities that can be considered as symmetrical with consumers in the standard model. If government regulation has guaranteed that there are some economic rents floating around, why should these pharmacies not have access to some of it by any means possible?

    • 

      Not a good bet. There is a very important difference between mergers which also have efficiency-enhancing properties and naked price-fixing. Existing antitrust law (in theory) allows pro-competitive collaboration (whether by contract or merger) while prohibiting the anti-competitive sort. We can have a discussion about how well antitrust agencies and courts can distinguish the two in different settings, e.g. cartel, merger, and monopolization cases. But I take it that is not your point. Your point is that there is some sort of contradiction between being OK with a merger but not a collusive agreement on price. But the former is an arrangement that both economic theory and empirical evidence indicate may be pro-competitive or anti-competitive while the latter is one that always or almost always is anti-competitive. It would not make economic sense to treat them the same way. Nor would it make sense for antitrust law informed by economics to treat them symmetrically. And antitrust law does not. As discussed in my testimony, existing law would allow pharmacies broad latitude to combine and cooperate to extract available rents; though it clearly prohibits them from naked price-fixing arrangements. And in my view, our economic understanding of the welfare effects of exemptions from price-fixing liability (and not, to be clear, antitrust generally) is more than sufficient to support the case against such exemptions. Not to mention the social costs incurred in entertaining special interest rent-seeking associated with providing such exemptions on a case by case basis wherever one observes disparate bargaining power between buyers and sellers.

  2. 
    Walter Sobchak 31 March 2012 at 8:30 pm

    Seems to be rather late to get around to doing this. There are very few independent pharmacies left. The rest of country is split between CVS/Wallgreen and Wal*Mart/Target.

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