Pptmicroeconomics 100208131316-phpapp01


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Lecture on Micro Economics

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  • -Monopolistically competitive -Many sellers producing differentiated products -Firms engage in vertical/horizontal integration -Companies often specialize in product lines that deal with specific types of illnesses like cancer or central nervous system disorders -Johnson and Johnson -Founded in 1886 -Fortune 500 company -250+ subsidiary companies -Barron’s Magazine ranked it the world’s most respected company -Pfizer -Founded in 1849 -Best known for Lipitor and Lyrica -Shares made a part of the Dow Jones Industrial Average in 2004 -Bayer -Founded in 1863 -German Company -Best known for Bayer aspirin
  • -Special features of the nature of demand in the pharmaceutical industry - Physician, not patient generally determines which drugs, and what quantity, are purchased - Demand is less elastic among people who are insured than among people who are not insured - Elasticity of demand also depends on whether or not there is a generic version of the drug
  • -Sensitivity to changes in income depends on the type of pharmaceuticals - Drugs needed to treat more pressing medical conditions (like infections, diabetes, etc.) are not so sensitive to income - Drugs used for preventative care or less pressing medical conditions (high blood pressure, depression, etc.) are more sensitive to income because people don’t see them as necessities when they have less money to spend
  • -“Many doctors and other experts say consumer belt-tightening is a big factor in the prescription downturn.” -” If enough people try to save money by forgoing drugs, controllable conditions could escalate into major medical problems. That could eventually raise the nation’s total health care bill and lower the nation’s standard of living.” -”With money tight, even cheaper generic drugs may not always be affordable drugs.”
  • Pptmicroeconomics 100208131316-phpapp01

    1. 1. Pharmaceutical Drugs Industry By Zach Brewer, Joanna Schrank, Tracy Empson, Mark Lyubovitky ECON-200-002
    2. 2. Structure of the Industry <ul><ul><li>1) Johnson and Johnson </li></ul></ul><ul><ul><li>2) Pfizer </li></ul></ul><ul><ul><li>3) Bayer </li></ul></ul><ul><ul><li>4) GlaxoSmithKline </li></ul></ul><ul><ul><li>5) Novartis </li></ul></ul><ul><li>The pharmaceutical industry is monopolistically competitive </li></ul><ul><li>Top ten competitors in the industry (based on revenues) </li></ul><ul><ul><li>6) Sanofi-Aventis </li></ul></ul><ul><ul><li>7) Hoffmann–La Roche </li></ul></ul><ul><ul><li>8) AstraZeneca </li></ul></ul><ul><ul><li>9) Merck & Co. </li></ul></ul><ul><ul><li>10) Abbott Laboratories </li></ul></ul>
    3. 3. Nature of Demand in the Industry <ul><li>Demand for pharmaceuticals has some special features: </li></ul>
    4. 4. How sensitive is the industry to changes in income? <ul><li>Sensitivity to changes in income depends on the type of pharmaceuticals. </li></ul>
    5. 5. How sensitive is the industry to changes in income? <ul><li>In October the New York Times ran a story about how the economic downturn is affecting the pharmaceutical industry. </li></ul><ul><li>Consumers are cutting back on their prescriptions in order to pay for other necessities. </li></ul><ul><li>Pharmaceutical sales are down </li></ul>
    6. 6. Supply and Demand <ul><li>Demand in the pharmaceutical industry is inelastic, since consumers need pharmaceuticals and will not make a drastic change in the amount they purchase even if prices rise. </li></ul><ul><li>Supply is elastic, since producers have more market power and can raise or lower the price without much change in their number of customers or the quantity customers buy. </li></ul>
    7. 7. Yummy Substitutes <ul><li>Zoloft and Prozac: Anti-depressants </li></ul><ul><li>Aspirin & Ibuprofen: pain relievers </li></ul>
    8. 8. Supply Factors <ul><li>Season change. For example, flu season is during cold weather months, so producers of flu shots will not supply as many flu shots during warmer weather. </li></ul><ul><li>Regulatory requirements (FDA) </li></ul><ul><li>Price pressure – government organizations, employers, consumer advocacy entities (AARP). </li></ul><ul><li>“… competition and the race towards gene profiling for therapeutic drugs may well push big pharmaceutical companies into niche drugs and smaller-batch production” (UPS Supply Chain Solutions). </li></ul><ul><li>http://www.ups-scs.com/solutions/white_papers/wp_pharma2.pdf </li></ul>
    9. 9. Short and Long Term Cost <ul><li>High cost: </li></ul><ul><ul><ul><li>Test products </li></ul></ul></ul><ul><ul><ul><li>Educate professionals </li></ul></ul></ul><ul><li>Low cost: </li></ul><ul><ul><ul><li>Cost of goods sold </li></ul></ul></ul>
    10. 10. Ability or Inability to Expand <ul><li>Contingent on what government will allow </li></ul><ul><li>Competition </li></ul><ul><li>Available technology </li></ul><ul><li>Social implication </li></ul><ul><li>Regulations overseas </li></ul>
    11. 11. Entrance/Exit to and from Industry <ul><li>High cost to enter market </li></ul><ul><li>Government regulation </li></ul>