Article: Monday, 13 March 2023
When managers for pharmaceutical firms decide not to comply with price control measures to improve access to essential medicines in developing countries, they encourage other pharmaceutical companies—large and small—to also become noncompliant. Therefore, promoting compliance with price controls by a small number of market leaders is vital to breaking the cycle of noncompliance with price controls committed by other pharmaceutical firms. Dr Mirko Benischke, Associate Professor of Global Strategy at Rotterdam School of Management, Erasmus University (RSM) and Dr Ajay Bhaskarabhatlafrom the Erasmus School of Economics (ESE) identify the ‘jumping on the bandwagon’ effect of firms deciding to act in noncompliance with price controls because they see other firms acting that way and the forces that strengthen such firm behavior.
This research could have implications for policymakers because when firms undermine global efforts by violating price controls, they make medicines unaffordable for ordinary people. The paper, Negative incentives and regulatory capture: noncompliance with price ceilings on essential medicines in India, was published in the Journal of Management Studies.
Benischke and Bhaskarabhatla studied the conditions under which firms were likely to violate price controls – regulatory mandates under which firms are not allowed to charge above a certain price for a certain medicine – for essential medicines in India. Access to essential medicines is viewed as a human right; however, despite decades-long efforts by the World Health Organisation, rising medicine prices continue to pose a significant challenge, especially in low- and middle-income countries such as India.
Indian authorities introduced price controls for 255 essential medicines to combat increasing prices and ensure essential medicines are affordable for the population. But the researchers knew from anecdotal evidence that these price controls in India were unsuccessful.
In some countries, policymakers have attempted to improve access to essential medicines; price controls are one of the mechanisms they use. As Benischke and Bhaskarabhatla observed, pharmaceutical firms play a critical role in global efforts to ensure affordable access to essential medicines.
“We wanted to study why these price controls were unsuccessful, with a focus on the implementation period. That is, we wanted to explain why firms decided to violate these price controls once they were implemented,” said Benischke.
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