discussion of the following points in your answer, using examples where appropri

Question

discussion of the following points in your answer, using examples where appropriate:
Is the market for pharmaceutical drugs an oligopoly market or a monopolistically competitive market? Support your answer.
Discuss the importance and cost of research and development. Does every drug pay off?
Is strategic behavior important in this market? Support your answer.
Is product differentiation important in this market? Support your answer.
How does the movement from a patented drug to a generic drug affect this market?

Explanation / Answer

1. Pharmaceutical drug market is a perfect example of Oligopoly. Oligopoly is a market structure where only a few large rivals are responsible for the bulk, if not all, industry output. As in the case of monopoly, high to very high barriers to entry are typical. Under oligopoly, the price/output decisions of firms are interrelated in the sense that direct reactions from leading rivals can be expected. As a result, the decision making of individual firms is based, in part, on the likely response of competitors. This "competition among the few@ involves a wide variety of price and nonprice methods of interfirm rivalry, as determined by the institutional characteristics of a particular market setting. Although fewness in the number of competitors gives rise to a potential for excess profits, above-normal rates of return are far from guaranteed. Competition among the few can sometimes be vigorous.

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