The Power and Benefits of Monopolies in the Pharmaceutical Industry

Due to patents, Pfizer and other companies in the pharmaceutical industry are not always competing in a monopolist’s competition. When a business has a patent they are the only manufacturer who can produce the product until the product expires, so it is clear that the firm can act as a monopoly while in control of the patent. As a monopolistic company, the company has market power, giving it the capability to adjust the market price of a good. The main goal for a monopolist and business owner is to maximize their profits, however, there are rules they have to abide by. The monopolistic companies still have to keep up with the market demand curve. The point at which they decide to produce will rest on their own acidities of revenue, risk and effort. The company also needs to know the price elasticity of the curve: the greater the price elasticity, the more a company such as Pfizer will struggle to establish high prices and a high volume.

Although monopolies appear damaging at times, there are arguments that they are an advantage to society. Monopolies in the pharmaceutical industry drive companies to pursue research and development (R&D) efforts to gain new patents. According to a 1992 study, among the 24 US. Industry groups, pharmaceuticals dedicated 16.6% of their amounts to basic research, while all other industries averaged at 5.3% (Sherer 1307). This fact validates the incentive pharmaceutical companies have to get a patent and acquire more power. Pfizer encourages R&D because of the incentives and a want to obtain patents to receive more profit. Pfizer has to promote itself to be successful, creating a good brand image that consumers will trust. If the company can advertise successfully, more consumers will purc...

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...necessarily in a true or honest way. To illustrate this point, in 1995, 100% of all PBM’s profits came directly from their usual sales and business practices. Six years later, in 2001, the majority of their income came from services to pharmaceutical companies (Martinez). This shows a definitive shift in the conduct of PBM’s.

Works Cited

Castellblanch, Ramon “Selling Out Seniors to Protect Drug Industry Profits” The Hartford

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Goozner, Merrill. The 800$ Million Pill. Berkley: U of California, 2004. Print.

Freudenheim, Milt “Influencing Doctor’s Orders” New York Times.

"Off the Charts: Pay, Profits and Spending by Drug Companies." Families USA, July 2001.

Web. 21 Apr. 2014.

Martinez, Barbara “Firms Paid to Trim Drug Costs Also Toil for Drug Makers” The Wall Street

Journal.

Scherer, F.M. Handbook of Health Economics. Ch.25