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Essay Example: Regulation and Competition of the Pharmaceutical Market

4 pages
851 words
Middlebury College
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Describe your selected submarket in terms of how regulated or competitive it currently is?

The pharmaceutical products show several characteristics that depict a high level of competition (Thomas, 2015).First and foremost, the market is considered to be highly innovative. It is quite expensive and risky to develop new pharmaceuticals. The companies which operate in the pharmaceutical industry incur high fixed costs in research and development of new drugs, a process which embeds higher risks since most of the drugs can eventually turn to be ineffective. There is an estimation that there are over $ 2.8 billion costs of successfully taking the drugs successfully from the laboratory to the market( DiMarsi, Grabiwdki, Hansen,2016).The high fixed costs tend to create a barrier to entry hence making it time-consuming as well as challenging for the new firms to enter the market. Therefore, due to monopoly powers, the pharmaceuticals take advantage and charge or maintain the high prices for their products.

Do you think this current state is appropriate? What problems have arisen because of competition or regulation?

Low elasticity of demand, as well as high research and development costs, are some of the features which are inherent in pharmaceutical products. Production of a safe and effective pharmaceutical thus cost a huge sum of money. In the market, the demand is not substantially affected by the reduced supply or high costs of drugs. It is because most of the populace depends on the pharmaceutical products which are out of the medical inevitability. Conversely, there are various regulations and laws which inhibit competition in the pharmaceutical markets to protect other interests. The laws thus allow the private entities in the private sector to edge competition in the market. Some of the examples of the laws which limit competition comprise of the Food and Drug Administration (FDA) and Patent System. Therefore, in the pharmaceutical industry, the two regulatory programs tend to facilitate a trade-off which restricts competitions to endorse the imperative interests. The FDA regulation restricts a large number of competitors that can enhance protection of the consumers by ensuring that there are a drug safety and effectiveness. They also limit the innovation and production of the new drugs as well as generic competition which is stimulated under the Hatch-Waxman Act. On the other hand, the patent system inhibits competition to promote the public disclosure of new inventions and promote innovation. The steps significantly regulate or restrict the actions of the pharmaceutical companies on the one hand and create various opportunities for creativity and expansion on the other hand.

What specific proposals do you have to improve competition in this submarket? Or, if it cant be made to function more competitively, what should the governments role be in addressing this? What would be the likely consequences of these solutions?

In the pharmaceutical industry, the policymakers should reevaluate the loopholes in laws which permit the pharmaceutical companies to prevent competition through generic deferral practices. The public lacks awareness on these generic delays just as they do on pharmaceutical pricing practices. To prevent the pharmaceutical companies from exacerbating drug prices further, there is a need for the creation of awareness to the public about the anticompetitive antics used by the pharmaceutical companies on their pursuit for profit maximization. However, if the companies are allowed to carry out these activities without any restriction, then their prices will continue to hike

Who would most benefit from this change? Who might suffer negative consequences?

Value creation through pricing tends to provide incentives to the society the urge to improve innovation. In the case where the forces of competition are strong, then the only way the pharmaceutical company will make a profit is through the production of highly quality products and valuable treatment services. On the other hand, if the competitive forces are weakened, the pricing strategies will not reflect value but rather shows a lack of market discipline as well as ethics. In the situation where the manufacturers generate profit through politicization against competition through regulations, the result will be a lack of invention of valuable drugs. However, it will create a space where the companies become safe from competitions on the virtues with contenders. The US systems work quite well since their strategies support the operations of the competitive forces which tend to lower the prices for the consumers and improve the innovation that the market values. However, the prices are still escalating over time. These leave the pharmaceutical product beneficiaries cannot explain the reasons behind the current price levels.



DiMasi, Joseph, Grabowski, Henry, Hansen, Ronald (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs, 47 Journal of Health Economics 20, 20-21

Frank RG(1993-1996) The ongoing regulation of generic drugs. N Engl J Med 2007; 357

IMS Institute for Healthcare Informatics (2013). Medicine use and shifting costs of healthcare: a review of the use of medicines in the United States (

Thomas, John, Pharmaceutical Patent Law 763 (3d. ed. 2015); Herbert Hovenkamp,

Sensible Antitrust Rules for Pharmaceutical Competition, 39 U.S.F. L. Rev. 11, 11 (2004).United States v. Baker Hughes Inc., 908 F.2d 981, 987 (D.C. Cir. 1990).


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