Anticompetitive Impacts of Laws that Regulate Commercial Use of Agricultural Biotechnologies in the United States

Abstract

This chapter examines economic inefficiencies that have occurred under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) because it is now used to regulate some biotechnologies in the United States. This statute has regulated pesticides for over half a century. Before a new pesticide can be sold it must be registered with the U.S. Environmental Protection Agency, which requires the registrant to bear the cost of many regulatory tests to ensure environmental safety. The pesticide can then be sold monopolistically either under a patent or under a 10-year exclusive use provision of FIFRA. Thereafter, generic firms can register and sell by offering to share the costs of prior regulatory tests (or by duplicating tests, which is typically prohibitive). However, FIFRA provides no standard for sharing these test costs, so many cases ultimately require litigation. This chapter shows that the share of regulatory test costs imposed on generic firms has major implications for post-patent competition because generic entrants typically capture a small share of the market and sell under competitive rather than monopolistic prices. Consumers and farmers are the main beneficiary of generic competition but their benefits are often delayed or never realized when the share of test costs borne by generic entrants is too large.