Excessive Drug Pricing as an Antitrust Violation

Posted by Social Science Research Network

Excessive Drug Pricing as an Antitrust Violation

By Harry First (New York University)

It is nearly four years since Martin Shkreli bought an off-patent drug named Daraprim and raised its price overnight by nearly 5500%. Public outcry was intense and Shkreli became the poster-child for excessive drug pricing. But his drug was not the only example of excessive price increases. Indeed, the excessively high prices of numerous pharmaceutical drugs has become a matter of intense public policy debate. High prices have been condemned by presidential candidates, by members of congress, by the President, and by federal bureaucrats. Effective federal action has not materialized, so states have tried to fill the gap. So far, though, either the proposals have made little sense or, even if sensible and adopted, have had little effect.

One might think that antitrust would be on the list of public policy tools to wield against high pharmaceutical prices, but it’s not. This is because of the conventional wisdom that the antitrust laws do not forbid high prices simpliciter. In this Article I argue that we are not condemned to that result. Closer examination of prior efforts to deal with excessive prices in other areas of the economy shows a willingness to take on excessively high prices, at least where the seller is exploiting what might be a temporary power to raise prices of much-needed products. Further, closer examination of antitrust case law shows that there is no direct precedent barring the courts from finding that raising prices to an excessive level is conduct that violates Section 2 of the Sherman Act. Indeed, decisions in the area of licensing of standard essential patents come close to condemning such pricing.

This Article begins with a general discussion of the problem of high prices and two examples of a non-antitrust approach to this problem. I then focus on the current antitrust approach to excessive pricing and the assumed inapplicability of Section 2 of the Sherman Act to a monopolist’s excessive pricing. I compare that approach to how U.S. courts and enforcers have handled standard essential patent licensing and how competition law enforcers outside the United States are now tackling the issue of excessive pharmaceutical drug pricing as an abuse of dominance. I then look at three examples of excessive pricing of pharmaceutical drugs, arguing that excessive pricing could be the basis of antitrust liability under Section 2 in each case. I conclude with some suggestions for how an antitrust enforcement program in this area might proceed.

Robert Bork wrote that antitrust is a “consumer welfare prescription.” I agree. Excessively high pharmaceutical pricing, imposed by firms with monopoly power, extracts money from consumers and gives it to producers for no other reason than that they are in a position to take it. Surely the antitrust laws can do something about that.

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