Indian pharmaceutical sector is one of the fastest growing sectors of the world with a global rank of 3rd worldwide in production of drugs and pharmaceutical products and 14th in terms of value addition in the entire economy. As of 2021, there are more than 3,000 functional drug companies and nearly 11,000 functional manufacturing units of pharmaceutical products in the country.
In various countries such as India wherein the socio – cultural and privacy concerns have created a taboo for use or purchase of certain products available at pharmacies such as contraceptive substances or sanitary or sexual health products, due to which a sizeable chunk of the population shies away from visiting a pharmaceutical store setup in a physical location. The e – pharmacies have come to the rescue for such consumers wherein the privacy and sanctity of the orders of the customers is maintained along with selling products exclusively with a prescription.
Since the advent of e – pharmacies in most economies are a relatively new phenomenon which has recently found a huge boost post the COVID – 19 period and an increased access to the internet facilities across the globe. However, there are a number of competition law issues that the legislature as fell as the pharma giants having a significant presence in the virtual sector must address which are as follows:
- What kind of competition or anti – trust law questions can be raised by these e – commerce pharmacy players in the upcoming future, following the positive evolution of the sector in the upcoming years?
- What steps should be taken by the law and its implementation to ensure that the competitive advantage of e – pharmacies does not result in the breaking of positive and consumer centric position created by them through the impact of direct benefit caused to the consumers?
COMPETITIVE ADVANTAGES IN THE E – PHARMACIES MARKET
Since the pharmacy sector is one of the non – flexible sector in terms of product differentiation and rules of selling, there exists a narrow scope of improving services and gaining a competitive advantage to secure a dominant position in the market. Therefore, in order to ensure better selling and standing position in the market, e – pharmacies have increased their focus towards leadership, consumer service, delivery mechanism and increased discounts due to less cost which is resultant of savings from cost cutting mechanisms.
The biggest advantage in e – pharmacy sector is that there is an increased scale of operations due to wide coverage of geographical area, which in turn results in a larger consumer base that promotes profit and economy of scale that can provide greater profit to the sellers. Secondly, the e – pharmacies do not maintain a huge inventory of products since they can directly be secured from the seller as and when the demand arises, thereby acting as an intermediary in between the manufacturer and the customer.
The e – pharmacies, in form of a startup are also able to secure venture capital for their business concern that empowers them with the ability to market themselves extensively and aggressively along with providing proper discounts. COVID – 19 has also acted in such a manner which has enabled every e – commerce provider to grow and prosper, boosting their sales and performances in the profit front. The medicine and e – pharma sector has therefore received great boost due to their attractive policies and provisions enabling them to grow and develop.
ANALYZING POTENTIAL COMPETITION AND ANTI – TRUST LAW ISSUES IN THE E – PHARMACY MARKETS
Every market situation wherein there are recent developments that may pose a threat to the competitive situation of the market comes under the provision of competition law and the same is the case with e – pharmaceutical markets. The following challenges are faced by the sector in terms of competition law:
- Merger and Arrangements between major players
One of the biggest issues faced with any competitive market is the merger or amalgamation of two or more major players of the industry. The same is the case with the E – Pharmacy sector. In the recent developments, many major corporations and e – pharmaceutical players have shown a tendency to either merge, amalgamate, spin off or acquire considerable stake in other major players. For instance, in the Indian markets, a major e – pharmaceutical service provider Medlife has acquired another player, Myra. Reliance industries, which has recently shown its omnipresence in multifarious fields of business has also acquired a sizeable stake in e – pharmaceutical provider Netmeds which has also been approved by the Competition Commission of India.
Amazon and Flipkart, India’s e – commerce giants have also floated their own companies for providing e – pharmaceutical services along with growing their business models. Under Section 3(4) of the Competition Act, 2002, the commission has been deeply concerned due to the allegations of securing a dominant position by attempting to enter into agreements of a nature that it shall not be permitted to the suppliers to engage in supply and trade of medicines to rival firms and companies at the same rate, giving them equal discounts or imposing brokerage fees. This has therefore led to a situation which could be catastrophic for the medicine market.
The exclusivity clause in the supply agreement which is undertaken by major e – pharmaceutical suppliers is also against the spirit of permissible competitive agreements and is an anti-competitive agreement which is non – permissible under the law. The Indian market in the sphere of pharmaceutical sector is presently growing at a healthy pace and such trends could hamper the growth as well as the spirit of competition, leading to monopolization of trade in the country.
- Dominance by e – commerce giants such as Amazon or Flipkart
Dominance per – se is not prohibited under the competition laws of India but abuse of a dominant position secured by any market entity is blatantly and completely illegal. In the peculiar case of Amazon and Flipkart, which have been operating in the Indian markets much before the advent of any other e – pharmaceutical sector, enjoy a huge share of customer base along with access to consumer data and consumer trends which can help them gain an unfair advantage over their rivals while analysing the consumer trends in the market.
This provision is however not anti – competitive per se but still poses a huge potential threat to not only the Indian markets but also the global competitive law regime along with data protection laws. Foreseeing the future, this would have a huge potential to wipe out a sizeable chunk of offline stores due to lack of customer data and already available market advantage.
- Bundling of Services
One of the major potential anti– competitive issue which may lead to abuse of dominant position of e – pharmacies providers is the threat of bundling of products or services. For instance, after gaining a huge chunk of customer base, an e – pharmacy provider may coerce or force the customers to avail virtual or on – site healthcare consultation from the doctors registered with the platform to obtain benefit of their services. This would result in excessive burden on the customers and therefore would also be covered in the ambit of anti – competitive market.
The competitive regime in India would also stand defeated with this provision and therefore it would be needed to get curbed as soon as possible before this could result in major issues with the Indian markets.
- Artificial Pricing
Artificial pricing refers to a phenomenon wherein the price of services or commodities is inflated to a huge extent and then deflated by the use of attractive discounts and coupons so that the customers are lured into availing their services.
In the recent years, there have been a number of such instances where cases have been filed with the Competition Commission and it has been ruled against these practices. However, there exists no proper legal framework to avoid such practices and punish the delinquent companies.
The legislature should look into this system in order to prevent the system of artificial pricing by amending the 2002 legislation and adding this safeguard in interest of the consumers and the market at large.
CRITICAL ANALYSIS AND CONCLUSION
The Indian e – pharmaceutical market as compared to the global scenario still has a significant amount of healthy competition wherein there is a huge number of new entrants in the market. However, the new enterprises entering the market are short lived and due to some grey areas in the legislation, they are compelled to exit the markets.
There is a need for strategic intervention in the field of medical and e – pharmaceutical sector due to an increasing trend towards e – shopping and lack of transparency in functioning of such players which leads to further disturbance in the supply chain mechanism of products.
Post COVID – 19 and advent of novel diseases, the e- pharmaceutical sector can definitely be a boon to the consumers and the market if there is an improvement in regulation of the following areas:
- Firstly, the anti – supply agreements based upon break – up or non – trade fees that do not permit free flow of trade and supply should be deemed to be illegal and void as per law. This would promise the consumers with an option to choose between players in the online markets as well as offline stores and prevent the bottlenecking of consumers.
- Secondly, attempt should be made in restricting the data protection infringement of various e – commerce players which give an unfair advantage to them when they enter the e – pharmaceutical markets. This would also create a level playing field in the market and ensure a healthy competition.
- Anticipatory measures in form of anti – price rigging, forced bundling of products and restrictive practices should be dealt in a proper manner by the government.
Through these constructive measures, the potential issues can be wiped out and ensure a greater pace of growth and development of the e-pharmaceutical sector.
Authored by Akash Sharma who is a 4th year student of B.A LL. B from Symbiosis Law School, NOIDA and can be reached out here.