Subject: Report for Policymaker Pete
Microeconomics – Project Part 9
A patent lawfully permits an individual or organization to enforce barriers within a given industry in a bid to prohibit other market players from creating competition. A patent therefore gives some form of product monopolization to the patent proprietors for a given period before market liberalization is accorded (Grubb and Peter 43). A majority of pharmaceutical products bear very low production expenditure yet the selling price of the patented product is set at a high cost level due to the colossal outlays involved in the research procedures. This form of costing acts as a tradeoff point for producers by allowing the company to recoup the research outlay acquired from trading proceeds. Patents are therefore given for a period just until the input outlay is attained.
With the limited monopoly control in the pharmaceutical market, a patented product is allowed to charge high prices on the drugs. This is achieved first through the market arrangement that allows demand to always overcome the supply level albeit within an insignificant level (Grubb and Peter 57). Indeed, as demand overcomes the supply then the prices are set high due to product shortages whereas, as supply overcomes the demand the prices are forced downward due to the surplus element. With a patented pharmaceutical product, deficiency instances are not created but the company ensures that it strictly produces the given demand to eliminate the surplus element.
With the expiration of a patent, market entry is permitted. Despite the fact that the patented product initially serves the given demand, surpluses are introduced to the industry thereby enhancing competition. This in turn acts within the demand laws by bringing the charges downwards and ultimately reducing the selling price (Grubb and Peter 57). Therefore, it is only within the monopoly setting that the pharmaceutical company is able to fix high prices since no other market player challenges the move by offering alternative products. Additionally, the consumer mix is inelastic since it only offers the product at the supply price thus forcing the buyers to comply with the set pricing or fail to acquire the product. This is notably within all forms of monopoly settings where the purchaser’s powers are constrained by the producer.
To acquire an in-depth comprehension of the tradeoffs attached to patented products, we will review the production of the Celebrex 100mg drug. A consignment of one hundred tablets costs 130.27 dollars as reflected by the market price covered by consumers (Davis and Mary, 2007). The active components required for the same amount of drugs is supplied at 0.60 dollars. Therefore, the selling charges outweigh the production charges by 129.67 dollars when translated into financial terms. The price difference is accredited to the production outlay that US officials have projected as being between eight hundred million and two billion for each new drug (Masia, 2008).
Therefore, it is evident that pharmaceutical companies bear enhanced risks within the production procedures due to the colossal finances required to acquire a new medical product. This inflated due to the failures present before a breakthrough is noted in drug manufacturing. Note that the massive trials encountered within the process actually bear costs that have to be recaptured back into the given company once the drug is created. Offering a patent therefore acts as a form of enticement to the producers as a tangible recouping channel through monopolization and high pricing is used since it acts as collateral against the monetary and non-monetary inputs required within the process (Masia, 2008).
In conclusion, Ecovia should maintain the twenty year patent arrangement for pharmaceuticals since we have ascertained the elevated costs present in such productions. Reduction of the patent periods will be extremely expensive for consumers as the recouping is spread across a shorter period. For instance, if a company needs to recoup 100 dollars within a period of 20 or 50 days, then both durations will charge 50 dollars and 20 dollars per day respectively with the former bearing a higher burden (Grubb and Peter 213). Therefore, in a bid to lessen the consumption burden on buyers, the patent duration should not be reduced. Additionally, eliminating patents is unacceptable, as producers would discontinue drug manufacturing and research practices, which would accord adverse impacts on the populace’s health.
Works Cited
Davis, Sharon, and Mary Palmer. “The Real Cost of Your Prescription Drugs.” Insight Journal 8 Jan 2007. Web. 11 Aug. 2011. <http://www.anxiety-and-depression-solutions.com/articles/conventional/pharmaceutical/realdrugcosts.php>.
Grubb, Philip, and Peter Thomsen. Patents for chemicals, pharmaceuticals, and biotechnology: fundamentals of global law, practice, and strategy. Oxford: Oxford University Press, 2010. Print.
Masia, Neal. “The Cost of Developing a New Drug.” U.S. Department of State’s Bureau International Programs 23 April 2008. Web. 11 Aug. 2011. <http://www.america.gov/st/econ-english/2008/April/20080429230904myleen0.5233981.html>.
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