Consumer Protection: Legal Issues Affecting Businesses (Research Paper Sample)

Legal Issues Affecting Businesses
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Abstract
Antitrust laws protect major manufacturers which seem as if they are promoting and supporting monopolistic powers. Federal Trade Commission protects consumers from monopolistic powers that may harm consumers in several ways. Therefore, Federal Trade Commission promotes fair trade in a variety of ways that are discussed in this paper. Fair trade involves conducting business in respectful and transparent way. Some legal issues that relates to conducting fair trade are discussed in this paper.
Federal Trade Commission (FTC) protects consumers from noncompetitive business practices such as monopoly. Federal trade commission was established in 1914 with the aim of protecting consumers and preventing anticompetitive business practices. This was after Supreme Court decisions that destroyed Standard oil and American Tobacco monopoly in 1911. FTC ensures consumer protection by investigating mergers and consumers and business reports. In addition, it protects consumers from false advertising or any other fraud (Garber, 2013). FTC through the Bureau of Consumer Protection protects consumers from deceptive or unfair acts in business. In addition, FTC through bureau of competition eliminates and prevents anticompetitive business practices.
Generic drugs are those which are comparable in dosage, quality, strength, performance and quality. Generic drugs contain the same active ingredients as those of the original drug. Food and Drug Administration (FDA) considers generic drugs identical in strength, safety, administration and intended use as well as composition. However, they are sold at lower prices compared to the originals (Curtin, 2011). The reason for this is that competition increases among drugs that are not protected by patents. Companies do not incur much cost while developing generic drugs like the original and this makes it possible to maintain profitability even at lower prices. Therefore, prices of such drugs are low such that users from less developed economies are able to afford them. Generic drugs manufacturers do not incur cost for research and development as well as the initial costs of advertisement (Garber, 2013). In addition, these manufacturers do not incur the cost of proving efficacy and safety usually done through clinical trials.
There are a variety of reasons that makes large competitors stymie competition. One of the reasons is loss of revenues due to such competition. While generic drugs are lowly priced due to cost incurred during development being low, original drugs are highly priced. This means that consumers will opt for the low priced drugs as generics have the same benefits. Original drugs are highly priced as it takes long and a lot of money to bring them to the market (Curtin, 2011). Large companies want to recover the cost incurred in research and development which means that they must remain for a long time in the market with competitors offering cheap drugs. In addition, such companies incur a lot of cost in advertising and marketing their products thereby millions of dollars are invested. Competitors can hinder efforts of large companies from becoming successful.
More than three quarters of prescription drugs in the market are generic drugs today and they are expected to increase with time. However, generic medicines have saved a lot of cost for treatment. The first year that generic drugs enter into the market, brand name drug incur up half of their revenues. This is as a result of competitors gaining a market share that was held by brand name and also dropping of the prices (Somers & United States, 2010). There is a large incentive that makes delaying of generic competitors from entering into the marketplace. Major manufacturers know that even a single month delay of entry to such entry would save them a lot of revenues. This means that manufacturers have to hold and maintain their marketplace as long as possible and this can only be achieved by stymie generic competitors.
Small generic competitors can be stopped from gaining market power using several ways. One way that pharmaceutical manufacturer can stop small generic competitors is through having exclusive deals with CVS. Such deals prevent generic competitors from having access to major retailers. New entrants into the industry are faced by a lot of hurdles that were established by large businesses in Pharmaceutical industry (Garber, 2013). These businesses have established regulations and international standards that must be maintained. Limiting access to the distribution channels would limit entry of new entrants into the market thereby reducing competition. Other ways would e through creation of brand loyalty which can be achieved by creating advertisements (Curtin, 2011). Brand image results to consumer loyalty that deters entry of generic competitors. Therefore, new firms would deter new entrants from gaining much power in the market.
Large pharmaceutical industries may offer barriers to entry in a perfect manner as they have manufacturing capabilities that are not easy to replicate. These manufacturers have a lot of patents which are meant to protect their products and through heavy advertising they are able to defend their brand. Some of the brands are so strong that no advertising can easily dislodge them from the marketplace position that they hold (Somers & United States, 2010).
Pharmaceutical companies are required to abide by international pharmaceutical standards. These companies are required to develop appropriate business standards that ensure that safety is maintained. These responsible business standards were established by top firms with the aim of ensuring that a niche is maintained in the marketplace. Generic drug manufacturers cannot make changes to the labeling (Curtin, 2011). It is only brand-name drug companies that are allowed to update information about safety of their drugs without being approved by FDA. However, FDA is considering allowing them or establishing rules that makes generic drug makers to undergo the same risk as brand name firms. Therefore, generic drugs manufacturers would be faced by the same liabilities if warning or other label information harms the consumers.
Mergers and acquisition are corporate management and finance concept that deals with joining or purchasing of companies. In a merger, two organizations join together to form a totally new business entity with a new business name. Companies which merge are usually small in size and also stature. On the other hand, acquisition involves a big company buying a small company where the small company is absorbed and is run as a subsidiary (Gregoriou & Renneboog, 2007). Mergers and acquisition can benefit organizations in a variety of ways such that companies formed are much stronger financially and also while considering other resources. However, they may lead to unfair competition where a monopoly can be formed. For example, Standard Oil was formed through acquisition and mergers that led to creation of the largest monopoly in Oil Industry in the U.S history (Miller, 2008).
International mergers among developing and developed economy industries is not a good idea as it can reduce competition. The major reason for consumers having issues with mergers and acquisitions is that they reduce competition that is associated with many players in a certain industry. For example, there would be increase in prices for consumers if one wireless company was available in a country (Gregoriou & Renneboog, 2007). Consumer advocates protects and promote the welfare of consumers in such scenarios. In addition, there would be revolts among consumers in reaction to such merger and they may be involved in demonstrations which can result to destruction of property.
There are other issues that are associated with merger in addition to increased prices. Complains will come about these mergers whenever two companies plan which will be experienced...