Both of these moves broke the monopoly. The Canadian government broke Bayer's monopoly and the second company moved into the market, creating a temporary oligopoly. The influx of Cipro from Mexico represented a substitute product, thereby breaking Cipro's American monopoly. This lowered the price of the drug until demand subsided -- note that it was demand that subsided and not supply. This despite the fact that the monopoly-granting patent protection was affirmed in U.S. courts (Bayer, 2002).
Eventually, the market for Cipro returned to equilibrium once the crises was over. By seeing how the market changed when introduced to different stimuli, we can better understand the characteristics of this market.
The market for Cipro -- and in general all patent-protected medicines -- began as a monopoly in equilibrium. Bayer enjoyed substantial pricing power and demand stayed at or near the demand floor as a result. When demand began to price, a shortage of the good occurred and the price when up. With higher demand, new market entrants emerged. This had unusual impacts, but they included what would be expected if a monopoly ended -- price dropped and supply increased.
When the Canadian government restored Bayer's patent- by court order - it restored the monopoly for Cipro (Spurgeon, 2001). This brought the Canadian market for the drug back into equilibrium. When demand started to falter in the U.S., so did the prices. The new entrant (Mexican Cipro) went off the market. Supplies decreased until the market was restored to its full equilibrium. Demand is normal, supply is normal and prices are normal as well.
If we checklist the Cipro market in equilibrium against what a monopoly market should look like, we can see that the market for anthrax treatment is a monopoly market. There is only one firm in the industry -- Bayer. We saw that in the two instances where the monopoly was broken, one utilized Bayer product from Mexico, the other from a Canadian company.
There must be high barriers to entry. In this case, both breaks in the monopoly were ultimately settled. The Canada situation was the most telling -- the federal government was ordered to restore the patent by the...
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