Role of price monitoring

25.27 The ACCC provided a detailed discussion of the role of price monitoring in its response to DP 68. It considered the extent to which price monitoring of patented medical genetic tests and other genetic inventions would be aligned to the objectives, industry and product characteristics, and circumstances in which price monitoring is likely to be effective.[33]

25.28 The ACCC noted that in order for price monitoring to be effective, it must meet its stated objective. In its view, a government review or specific inquiry into the cost of patented genetic inventions would assist to determine whether such monitoring is necessary and, if so, the possible objectives of such a project. The ACCC suggested that the degree of industry concentration, the level of product differentiation, and the stage of production at which monitoring is focused, are all likely to influence the feasibility and effectiveness of price monitoring. For example, in the case of a monopoly or oligopoly it may be possible to obtain all required information directly from one or a few firms. However, if the monitored product is sold by a number of suppliers, the only effective way to obtain pricing information may be to obtain an appropriate price survey.

25.29 The ACCC stated that price monitoring is likely to be more effective when it involves direct monitoring of observable prices. It noted that, in practice, it is often difficult to obtain specific information in relation to prices that are the subject of confidential and commercially sensitive contracts. In addition, where products are highly differentiated in terms of price and/or quality, this could lead to difficulties in comparing input and final product prices between products, and in establishing benchmark prices.

25.30 The ACCC also commented that there could be inherent difficulties in determining what would constitute excessive pricing in the biotechnology industry. In its view, these markets are likely to provide high returns on a small number of viable products, so as to absorb the upfront investment costs generally associated with funding research and development across a number of developing products. Accordingly, these types of pricing signals could encourage further research and innovation in a growing industry. It commented that:

there is therefore potential for price regulation to stifle innovation. In some circumstances, high prices can act as a signal to new entry by highlighting profitable opportunities and may encourage further innovation. High prices and the expectation that profits may be accrued could be seen as reward for innovation in an industry that might be characterised as ‘high risk’.[34]

25.31 The ACCC further noted that even if a review or inquiry identified excessive pricing, Part VIIA of the TPA does not empower it to set price levels. Its pricing powers apply to price changes, not to absolute price levels. Accordingly, the ACCC could not compel a regulated firm to reduce its prices. The ACCC therefore considered that there was no suitable role for it in monitoring the prices charged for medical genetic tests or any other products or services arising from the grant of gene patents or licences.[35]

[33]Australian Competition and Consumer Commission, Submission P114, 3 May 2004.