Regulation Directed at Controlling Prices Two broad regulatory strategies can influence retail prices for medicines. The first focuses on increasing competition by changing the structure of a market and the conduct of the sellers in that market. (Here “structure” means the number of competitors and competitive products and their relative market shares.) This approach is typically called “antimonopoly” or “competition policy.” The second approach seeks to regulate prices and margins directly. Antimonopoly policy has not been widely used in the pharmaceutical sector in many low- and middle-income countries. An exception is South Africa, where the Competition Commission became an important force in the struggle for expanded access to AIDS medicines in that country (Commission Questions Conduct 2003). As noted in chapter 8, in small countries, economies of scale limit the number of sellers at the wholesale level. The same forces also constrain retail competition in all but the larger urban areas. Where competitors engage in blatant anticompetitive behavior (such as bid rigging and threatening would-be newcomers), some opportunities for regulatory intervention may exist. But major supply chain firms are often economically significant and politically well connected. So regulators are well-advised to make sure that they have appropriate political support before embarking on such actions. Regulators also need to make sure they have an adequate legislative basis for such initiatives, because the required statutory framework is quite sophisticated and may not be present in all situations. Regulation of prices and margins can be accomplished in various ways. Sometimes it takes the form of price regulation for some or all products on the essential medicines list. Sometimes it takes the form of setting maximum prices that public insurance funds will pay. Sometimes it has involved regulating the margins between the prices paid to wholesalers and the prices charged at the retail level. Recently, interest has increased in a particular form of this regulation, called “regressive margins.” It allows higher percentage margins on lower-priced products, as a way to counteract retailers’ incentives to push higher-priced and higher-margin products on customers. Absent a comprehensive and sophisticated price control system—which is difficult to implement even in an advanced economy—regulators have to expect that distortions will occur with any price or margin control regime. In low- and middle-income countries, where many retail outlets are small and lack sophisticated records (and most transactions are in cash), inspec-
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Pharmaceutical Reform