1. Happy Pets, Inc. has had a virtual monopoly for antidepressant drugs for anim
ID: 1177885 • Letter: 1
Question
1. Happy Pets, Inc. has had a virtual monopoly for antidepressant drugs for animals for years (similar to Eli Lilly%u2019s product Prozac for humans). With a patent on this drug, it has had very little competition and this drug has been a major source of company revenue and profit. However, the patent will soon expire and other drug-manufacturing firms seem to be preparing to enter the market in competition with Happy Pets. Describe the changes in pricing that are likely as competitors enter this market. Describe the current market structure and the type of market structure you think will emerge after the patent expires. What should Happy Pets do in response to these market changes to maximize its profits from this product? What other recommendations would you offer this firm?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Explanation / Answer
More than likely prices will fall, as new entrants will undercut Happy Pets' current price to gain traction. Right now, Happy Pets is able to arrange their own pricing, and has a basic monopoly on this drug, so the market is fairly inelastic, since there are no other options. After competition brings their products to market, likely undercutting Happy Pets, the market will begin to become elastic, as consumers begin to have choice. Happy Pets should use its considerable fore knoweldge of this industry to its advantage, to maximize production efficiency and perhaps even make deals with its entire supply chain, all the way to its retail outlets, to keep Happy Pets' advantage.
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