Improve Existing Good Service Chosen Company. Include

¶ … improve existing good service chosen company. Include elasticity demand market structure company's good service. Analyze data determine fixed variable costs.

GlaxoSmithKline: Paxil

What are the company's strategies to increase revenue?

To continue to ensure that consumers trust Paxil, its flagship antidepressant, the company must revitalize its reputation: GSK was recently fined three million dollars for encouraging off-label use for Paxil as treatment for children with depression (Verducci 2012).

To continue to produce new drugs through research and development for profitable populations. Drug companies must continually come up with new treatments that they can sell at a high profit, as their existing patents run out, allowing competitors to make cheaper generic drugs (Johnson 2011)

GSK is attempting to increase its holdings in developing markets such as Nigeria and India, to take advantage of expanding demand (France-Presse 2012)

Define the economic theory and show how you can determine the profit-maximizing quantity?

"Pharmaceutical companies often maintain that patent protection for drugs ensures that they are able to invest billions of dollars into the development of new products, by making sure that they will be able to take advantage of the sales" (Controversy, 2012, Fed Circ). Drugs are cheap to manufacture but expensive to develop, so patent protections allow drug companies to make a profit.

How could you use the concepts of marginal cost and marginal revenue to maximize profit? What information do you need to determine this? Without this information, how would you make a decision?

Making determinations about marginal cost and revenue are difficult for drug companies. Before substantially investing in R&D, a drug company must have a reasonable estimation about how much the drug -- if successfully generated -- can be marketed for, before the drug 'goes generic.'

Quite often, the success of one drug must support the costs of R&D for another drug which may or may not prove to be viable, hence the desire to capitalize upon the success of existing products like Paxil. Unfortunately, GSK went too far in stressing off-label use.

The FDA must approve all marketed uses for prescription drugs, and studies must substantiate drug efficacy, but GSK did not observe this when marketing Paxil. Instead, GSK aggressively marketed Paxil's unproven off-label uses according to the government's case against the company and even went so far to "publish a medical journal article that misreported data from a clinical trial" regarding the safety and efficacy of the product in children (Breggin 2012). This has tainted the drug's reputation even for on-label use which the company must rebuild.

What the company's strategy for pricing and non-pricing strategies?

GSK aggressively markets drugs on which it still has a patent to support the losses that will be incurred once generic forms of the drug are developed: it prices certain products very high, relative to input costs because it knows it must eventually bring those prices down in the face of more competition when the patent expires.