Demand is dependent on the frequency of a condition in the population. This number, for most conditions, is generally known. Thus, the equilibrium point can be determined that would deliver the cost recovery and markup pharma companies seek, without allowing costs to escalate to gouging levels. The problem is that once the monopoly has been granted there are no serious cost controls beyond market controls.
There are two problems with this. The first is that without cost controls, it is difficult to improve bargaining power. First, buyers have little bargaining power because most buyers -- even insurance companies -- lack size to bargain over prices. Only Medicare and Medicaid have the size to drive prices down, because pharma companies are dependent on their money even with the monopoly. The second is that there is information asymmetry, which reduces the bargaining power of buyers. Again, only the largest and most sophisticated buyers will have any chance of determining the "right" price to pay for a drug, and everyone else will essentially be price-takers. For conditions where there are few if any substitutes, almost every buyer will be a price-taker. Thus, the conditions are ripe for abuse of monopoly power.
Where abuse of monopoly power exists, not only are economic outcomes negative but so are the social outcomes. Consumers can be priced out of life-saving treatments. This is the case in the private market, where insurance companies might balk, but also in public markets. Even governments might balk at high-priced pharmaceuticals where some sort of substitute exists.
Worse, the pharma industry has recognized the value of monopoly to its bottom line and sought to extend it. Drugs see new applications to the FDA for new uses, to attempt to extend the useful (monopoly) life of a drug. Some companies are now trying to patent human genes, even. The gene
BRCA is linked to very high rates of breast cancer, but...
Monopoly Radical Treatise on Monopoly When a firm is the only seller or supplier of a good or a service for which there is no close substitute, it is referred to as a monopoly. Broadly speaking, every firm would naturally like to have a monopoly given that monopolies do not face competition. However, monopolists can only succeed in a market situation where the barriers to entry are very high (Brue & McConnell,
The OFT may then refer the companies to the Competition Commission (formerly known as Monopolies and Mergers Commission). The Competition Commission also plays a major role to investigate the situations which are called 'Oligopoly Situations' which involve explicit or implicit collusion between firms. Then the Competition Commission decides if the monopoly is acting against the public interest or not. And if they find a firm with a monopoly situation they
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
The lack of incentives or competitive pressures may lead monopolistic firms to neglect minimizing unit costs of production, i.e., to tolerate "X-inefficiency" (phrase coined by H. Leibenstein). Included in X- inefficiency are wasteful expenditures such as maintenance of excess capacity, luxurious executive benefits, political lobbying seeking protection and favourable regulations, and litigation" (Khemani and Shapiro, 1993). In all, monopoly is the economic state in which a single company produces a
A few years ago there were congressional hearings about the accusation against the larger airlines actively working to shut out any smaller newcomer to certain hubs around the world. While the ability and willingness of incumbent airlines to respond to competitive entry is central to competition, at some point that response may cross the line of fair competition and become an unfairly exclusionary practice intended to drive the entrant from the
Therefore, the change seen within the market structure Microsoft devotion high quality alive and strong. Still, there has been a decline of transactional costs in light of a broken up Microsoft. Before the change of business pattern, Microsoft held the monopoly and therefore capitalized on profit margins. Here the research shows that "Microsoft enjoys so much power in the market for Intel compatible PC operating systems that if it wished
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