Independent Pharmacies Civil Association

MEXICO, 1997

The case was brought by the Civil Association of Independent Pharmacies in the city of Cuernavaca (Pharmacies). They alleged that large commercial chains in their geographic area were selling products below their acquisition costs using permanent and temporary discounts. The relevant market was defined as the retail distribution of pharmaceutical products in the city of Cuernavaca, due to the high transaction costs involved for consumers to access other markets. The FCC considered that predatory pricing behaviour would only be consistent if recoupment in the relevant market were possible, that is, if consumers in the city of Cuernavaca did not have access to other sources of supply and were forced, in the present and future, to acquire these products at monopoly prices. However, in assessing market power, the FCC did not find actual or potential entry barriers.

The practice of using permanent and temporary volume discounts to predate in prices was not accredited. Permanent discounts varied from distributor to distributor, depending on the bargaining power and reputation of purchaser firms. Temporary discounts were promoted by pharmaceutical labs, not by distributors and consisted of giving certain products when making purchases. Both discounts schemes favored larger pharmacy chains. In addition, larger pharmacies had lower operational margins than smaller pharmacies and a faster movement of inventories that, together with the discounts, allowed them to sell at lower prices and still make a profit.

The FCC resolved that the allegation was without grounds, and no elements were found to prove the existence of predatory practices.