Concerns and Solutions for Market Dominance and Limited Competition

Concerns and Solutions for Market Dominance and Limited Competition

The Curious Case of Chemist Warehouse and Sigma Healthcare

The proposed merger between Chemist Warehouse and Sigma Healthcare raises eyebrows for several reasons. While both companies boast a significant number of pharmacies – 550 for Chemist Warehouse and 400 for Sigma – Australian law restricts ownership to just a handful per state. This raises questions about how these companies operate within these limitations.

One tactic employed by Chemist Warehouse is utilizing franchisees with contracts that grant their head office a considerable degree of control. The Australian Competition and Consumer Commission describes their influence over these franchises as "likely particularly strong." Additionally, the diverse range of store names used by both companies, such as MyChemist, Amcal, and Discount Drug Store, can obscure their true market presence.

Despite their apparent dominance, genuine competition within the pharmacy sector remains elusive. Independent investigations have revealed instances where all pharmacies in a town are owned by the same group, despite different branding and seemingly competitive facades. This lack of competition translates to limited price discounts, even though pharmacies have been permitted to do so for the past eight years.

The peculiar rules governing pharmacy locations further stifle competition. Complex regulations make it nearly impossible for new pharmacies to establish themselves within close proximity to existing ones. This effectively creates a barrier to entry for potential competitors, further solidifying the market dominance of established players.

The high cost of purchasing a pharmacy, coupled with the limited discounting opportunities, creates a "taxi licence" phenomenon. Existing owners reap significant profits from the sale of their pharmacies, while new owners face immense pressure to maintain high prices to recoup their investment. This discourages new entrants and perpetuates the cycle of limited competition.

The solution lies in revising the regulations to allow unlimited discounting and simplifying location rules. This would pave the way for a more competitive landscape, potentially leading to lower prices and improved service for consumers. Additionally, exploring alternative models for dispensing medication, such as machines supervised by qualified staff, could further enhance efficiency and accessibility.

The proposed merger between Chemist Warehouse and Sigma Healthcare has raised concerns about market dominance and limited competition. Addressing these issues through regulatory reform and exploring alternative dispensing models could pave the way for a more vibrant and consumer-centric pharmacy sector in Australia.