International Legal and Ethical Issues in Business
In this assignment, we will review two scenarios of business practices and how these practices influence consumers. We will also explore antitrust laws and the fact that they were established to protect consumers and businesses from anti-competitive business practices.
The foundation of a dynamic economy is free and open trade. The benefits of lower prices and higher quality products or services is done through aggressive competition. To maintain this dynamic economy the United States Congress established and passed the first antitrust law. This law was named the Sherman Act of 1890. Two other antitrust laws ...view middle of the document...
All actions that violate the Federal Trade Commission Acts also Violates the Sherman Act according to the Supreme Court. (The Antitrust Laws, 2015)
The Clayton Act prohibits certain mergers and prohibits one person making decisions for businesses that compete against each other. These practices were not previously addressed by the Sherman Act. (The Antitrust Laws, 2015)
With this stated, most states also have their own antitrust laws that are enforced by the state attorney general or private citizens. (The Antitrust Laws, 2015)
The first example we will examine entails whether a multinational pharmaceutical company has attempted to minimize the impact of a generic competition to one of its most profitable prescription drugs.
A person may ask themselves why would a drug maker want to stymie generic drug competition? First of all we need to understand the ins and outs of a brand name drug. These drugs cost a lot of money to develop because they are developed from scratch. Usually a drug company applies for a patent which protects the generic form from being made for about 20 years. This gives the drug company time to recoup the cost of making the drug. (Meadows, 2003)
A generic drug is a drug that is the bioequivalent to a brand name drug in all concerns. It has the same dosage for, strength, and safety. The route of administration is also the same. The intended use is exactly the same as is the quality and performance characteristics. However, they are sold for a much lower price. These drugs can save a consumer anywhere from 8 to 10 billion dollars a year and even more when used by hospitals. Generic drugs do not cost as much to make because the development of these drugs have already been done by a brand-name drug company. (Generic Drugs, 2015)
The pharmaceutical industry has several legal barriers to entry. Barriers to entry just means that there are obstacles that prevent a company from entering a particular market with little cost. Probably the first and foremost effective barrier for a pharmaceutical company is the 20 year government patent. This patent protects the economic profits of the company spearheading the manufacturing of the drug. Generic drugs can only be made available after the development of a new innovative drug which requires a substantial investment. A new drug cost about $897 million to develop according to the FDA. (Meadows, 2003)
The second barrier is called a "first-mover" (brand loyalty advantage). Once the consumers take the drug and realizes it's beneficial effects they become loyal users not wanting to switch to a generic brand because they aren't sure how well it will work or if it will work at all. (Ettington, 2015)
The third barrier is for the company manufacturing the generic drug to be able to get their hands on the key chemical or active ingredient. The originating drug manufacturer may sell it but only if it is profitable to them. On the other hand, if the company...