International Business Ethics - Potential Restriction of Competition example

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Potential Restriction of Competition


The current paper reviews two examples of potential restriction of competition. In both examples the author considers ethical dilemmas. The first example concerns the patent-related barrier to entry into the drugs market. The second example concerns merger of the two large telecommunication companies. While analyzing the examples, the author looks at potential implication of the restriction of competition for consumers

Why would the drug maker want to stymie generic competition?

The main reason why would the drug maker want to stymie generic competition is to avoid the possibility of early competition in the drug. The agreement described is not a unique one as far as pharmaceutical industry is concerned. Hemphill (2006) suggests that such agreements exist and puzzle the antitrust enforcers. The author explains that such agreements arise as an alternative to patent litigation between the innovator, a manufacturer of a patented drug, and the generic drug maker, a future competitor of the innovator (Hemphill, 2006). Typically, it happens as follows. A generic drug maker seeks to enter the drug market before the patent of the innovator expires. The innovator challenges this attempt by claiming the violation of its patent rights. At this point, two scenarios are possible. First, the case goes to the court. In this event, there are two alternative outcomes: (1) generic drug manufacture wins and enters the market before the patent is expired; or (2) generic drug manufacturer looses the case and thus, is prevent from entering the market before the expiration of the patent. The second scenario is settlement: the parties decide to reach some sort of settlement agreement without resorting to court’s litigation. In some settlements, the innovator pays the generic manufacturer a certain amount and the manufacturer agrees to abstain from entering the market until a certain date. This was the case in FTC v. Actavis, Inc.: Solvay, the drug innovator, reached a settlement agreement with Actavis, the generic drug manufacturer, according to which would not bring a generic drug to market until 65 months before Solvay's patent expired. In this case, the Supreme Court admitted that although such settlements are not illegal per se, they may, however, sometimes violate the antitrust laws. Hence, the Court recognized that delaying market entry of a generic drug can have an anticompetitive effect. Competition puts a significant pressure of businesses. Thus, from business perspective, it is useful to restrain competition. While there may be ethical issues with this approach, there are not necessarily legal ones. At least, as far as US law is concerned, anticompetitive effect of an agreement between businesses is not necessarily a violation of the antitrust laws.

What types of legal barriers to market entry exist?

One of the ways to prevent new businesses from entering the market is to make the entry unlawful (McEachern, 2011). In other words, there are some legal protections against competition. Among such protections there are licenses and monopoly rights granted by government …

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