Pfizer
The Economics of the Pharmaceutical Industry -- Focus on Pfizer Drugs
Specify on some background of the company
According to its official website, Pfizer Incorporated "discovers, develops, manufactures, and markets leading prescription medicines for humans and animals and many of the world's best-known consumer brands. Our innovative, value-added products improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. The company has three business segments: health care, animal health and consumer health care. Our products are available in more than one hundred and fifty countries." (Official Website 2004)
Although Pfizer's claims to offer value to its consumers may be debatable, its contention that it is the leader of the industry in sheer dollar terms cannot be disputed. Of particular value to Pfizer as a stock has been its patent of the drug Viagra, and it continues to capitalize upon its dominance as an industry leader even in the second of its website that attempts to attract individuals to work for the company.
How inelastic is the demand for the company product?
Demand for pharmaceuticals is relatively inelastic, in the industry as a whole, not simply for Pfizer's drugs, but also in the sense that few consumers can say, 'oh well, the economy is bad, my budget is tight -- guess I'll cut back on my insulin/beta blockers/cholesterol lowering drug' this month. However, generic alternatives have posed potent threats for the industry. (EGA, 2004) Furthermore, although Pfizer has the advantage of having certain drugs, such as 'Viagra' with such high name recognition the brand name is virtually synonymous with the drug's function, Viagra is not a necessary drug because of its sexual enhancement function in the sense that life-preserving drugs are. However, the potency of the 'Viagra' name should not be underestimated. In other words, rather than the chemical name itself, much like Eli Lilly' relationship with the antidepressant drug Prozac, before Prozac's patent ran out in the past century, people know Viagra's function to be synonymous with Viagra rather than with the drug's generic alterative. However, Prozac, a potent antidepressant, was far more necessary to its core audience of psychologically disturbed users than Viagra, although it too was alleged as being a 'cosmetic' drug, as deployed by some physicians.
Why is the pharmaceutical company considered to be part of an oligopoly-style market?
In a traditional oligopoly market structure, there are only a few firms that make up the industry as a whole. (Investopedia, 2004) Thus, the few firms making up the industry have control over the prices of the industry's product, by and large, although the relatively wide range of products available within the pharmaceutical industry bring this economic fact into some dispute -- again, there is a difference in demand and drug effects within certain drug types, although not all. For instance, Viagra may be a favored brand for its purposes, but the over-the-counter Pfizer drug Sudafed, an anti-contestant, has far more competition and available substitutes.
Like a monopolistic market, an oligopolisic market often has high barriers to entry. The high cost of researching, developing, and patenting a new product alone mean that a company often has a great deal of problems entering a monopolistic of an oligopolistic market structure. In such market structures "the products are almost identical and thus the companies, competing for market share, are interdependent via market forces. If, for example, an economy needs only 100 widgets but Company X produces 50 and its competitor, Company Y, produces the other 50, the prices of the two brands will be interdependent upon one another and therefore similar. So, if Company X starts selling the widgets" for a lesser price, it will get a greater market share and force Company Y" to sell for a lesser price." (Investopedia, 2004)
How they compete against the other few competitors? Prices?
Only a few pharmaceutical giants, such as Pfizer and Eli Lilly, have the economic resources to do the necessary research to create new drugs, as well...
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