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Assignment 3: Economic Analysis of Supply and Market Structure of Healthcare
Industry – Generic Drugs
Jacqueline J. Santoro
University of Maryland Global Campus
HMGT 435 Healthcare Economics
Professor Janemarie Mulvey
28 November 2023
Memorandum
To:
Professor Janemarie Mulvey (Boss)
From:
Jacqueline Santoro
Subject:
Economic Analysis of Supply and Market Structure of Generic Drugs
Description of Product:
The products we are focusing on for this memo are generic drugs. Generic drugs are
medications utilized by consumers that are equivalent to brand-name drugs regarding dosage,
strength, administration route, quality, and intended use. Generic drugs are excluded from the
market until a patent expires (Lee, 2019). Essentially, a US patent can give a holder a monopoly
of 17 years for a brand-name drug because it is intellectual property. The monopoly created
through the US patent brings difficulty to bringing generic drugs into the market. However,
introduction of generic drugs into the market can promote competition, reduce healthcare costs,
and improve efficiency in the pharmaceutical market.
Identification of Market Structure and Key Characteristics:
The pharmaceutical industry has a market structure that operates as an oligopoly market.
Oligopolist firms only have a few rivals or a few large rivals and must utilize both strategic
movements and interdependence. Additionally, the decisions of some competitors will determine
the strategies of others in an oligopolistic market (Lee, 2019). Another significant characteristic
of an oligopoly market is product differentiation. Pharmaceutical companies work hard to
differentiate their product by developing distinctive drugs to gain competitive edge and a large
market share. As previously discussed, patents are a significant factor in creating entry barriers.
However, regulatory approvals and drug development processes also contribute to entry barrier
because they can be extensive in the pharmaceutical industry.
Determination of Price for Generic Drugs:
Given this market structure, prices charged for generic drugs are determined by many
different factors. Overall, generic drug prices have been declining in the United States since at
least 2010, however, many generic drugs have risen in price (Ornstein, 2017). Most
pharmaceutical prices are based on negotiations between private insurers and suppliers (Lee,
2019). There are two features of the US market that are uncommon in other countries. Firstly,
pharmacy benefit managers are often acting as a middleman between insurers and suppliers.
Another feature is that the federal government only plays a small role in negotiating prices. Other
factors which may play a role in price determination are concentration of the pharmaceutical
industry, product differentiation, research and development costs, patents, introduction of break-
through drugs. In conclusion, generic drugs within an oligopoly market is influenced by a
combination of market structure, competition, and other factors.
Effect of Private and Public Insurance:
The existence of private and public insurance influences the revenues received for
generic drugs. In the public insurance Medicare sphere, there is a prescription drug plan (PDP)
which uses copayments for enrollees that require prescription drugs. The copayments that are
imposed on patients have two purposes. A lower copayment for generic drugs causes Medicare
enrollees to usually switch to generics from the brand name drug. Secondly, it was found that
setting low copayments for generic drugs or even eliminating the copayment altogether had a big
effect on encouraging Medicare enrollees to switch to the generic statin (Feldstein, 2019). Lower
copayments can have either impact revenues in both a positive and negative way. For example,
lower copayments can incentivize patients to seek medications which can result in higher
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prescription volume thus impacting revenue positively. Comparatively, lower copayments mean
that patients contribute less out of pocket money for each prescription which can reduce revenue.
In the private insurance realm, they typically maintain formularies which outlines what
generic drugs are covered under the insurance. Another note is that private insurance companies
negotiate reimbursement rates with pharmaceutical manufacturers which can influence revenue
received for generic drugs. Private insurance companies often have policies which encourage the
switch from a brand name drug to a generic drug because they are less expensive.
Government Regulation:
One government regulation which has truly impacted the pharmaceutical industry and
generic drugs is the Hatch-Waxman Act which ensured the growth of generic drugs in the US by
allowing for an earlier and less costly FDA approval of drugs (Feldstein, 2019). Additionally, the
system aimed to accelerate patient access to affordable prescription drugs while also protecting
pharmaceutical innovation (Gupta, 2019). The act has effectively fostered competition in the
pharmaceutical industry and incentives for innovation. Overall, the act has played a vital role in
promoting cost-effective alternatives to brand-name drugs while ensuring the market has
controlled prices and does not fall into a monopolistic nature.
Market Failure:
The Hatch-Waxman Act aimed to address the market failures of imperfect competition
and imperfect information. The pharmaceutical industry has imperfect competition because of
the brand-name drugs and their patents. Patented drugs can create monopolies which limits
competition and allows for manufacturers to set higher prices. The Hatch-Waxman Act addresses
this issue because it introduces competition into the market by ensuring an easier process for
generic drug entry.
Imperfect information refers to when market participants do not have complete or
accurate information about products. Imperfect information comes into play because patients and
healthcare providers may lack information about the safety and effectiveness of generic drugs
when compared to brand-name counterparts. The Hatch-Waxman Act established a Abbreviated
New Drug Application (ANDA) process which allows for companies to submit new generic
drugs into the market. The ANDA allows generic drug manufacturers to rely upon the safety and
efficacy data developed by the original manufacturer (CRS Report, 2016). Overall, this addition
to the Hatch-Waxman Act allowed for consumers and healthcare providers to have more
information that is backed by therapeutic evidence of generic drugs. By streamlining the
approval process for generic drugs, the Hatch-Waxman Act was able to have a positive impact
on the market failures of imperfect competition and imperfect information.
References
CRS Report. (2016). The Hatch-Waxman Act: A primer. In
CRS Reports
.
https://www.everycrsreport.com/reports/R44643.html
Feldstein, P. (2019).
Health policy issues: An economic perspective. (7th ed.).
Health
Administration Press.
Gupta, R., Shah, N. D., & Ross, J. S. (2019). Generic Drugs in the United States: Policies to
Address Pricing and Competition.
Clinical pharmacology and therapeutics
,
105
(2), 329–
337. https://doi.org/10.1002/cpt.1314
Lee. R. (2019).
Economics for healthcare managers. (4th ed.).
Health Administration Press.
Ornstein, C., & Thomas, K. (2017).
Generic Drug Prices Are Falling, but Are Consumers
Benefitting?
nytimes.com. https://www.nytimes.com/2017/08/08/health/generic-drugs-
price-falling.html
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Related Questions
QUESTION 20
YEAR
PRODUCT
1988
1989
1990
1991
product
price: $2.00
$4.00
$6.00
$8.00
2,000
2,000
1,500
quantity:
price: $1.00
2,500
product
$1.00
$1.00
$1.00
Y.
quantity:
1,000
1,500
2,500
3,000
$5.00
$4.00
$2.00
$3.00
price:
quantity:
product
1,000
1,000
1,000
1,000
20. If the Consumer Price Index for 1990 was 200 and for 1991 it was 220, what was the annual rate of inflation between the two years?
20%
22%
10%
5%
O100%
QUESTION 21
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B
Product
Product A
Product B
Product C
Product D
Widget 1
Widget 2
Widget 3
Gadget X
Gadget Y
Gadget Z
3
4
5
6
7
8
9
10
11
12
13
14
15
16 Required:
17 Calculate the following statistics for both Advertising Expenses and Sales:
18
Advertising Expense
Sales
Advertising Expense
$36,900
$38,000
$33,000
$25,900
$26,000
$42,987
$39,008
$42,009
$19,067
$61,002
C
$19,067
$61,002
$135,568,977
$8,268
$36,387
$37,450
$41,935
$27,750
$41,259
Sales
$83,025
$85,500
$74,250
$90,650
$91,000
$150,455
$70,214
$75,616
$34,321
$244,008
$34,321
$244,008
$3,378,809,900
19 Minimum
20 Maximum
21 Variance
22 Standard Deviation
23 Mean
24 Median
25 Range
26 1st Quartile
27 3rd Quartile
28
88th Percentile
29 Inner Quartile Range
30
31 What is the correlation between the amount spent on advertising and the sales of a product?
32
33 Correlation
34
35 This number indicates a
36
$58,128
$99,904
$84,263
$209,687
$74,592
$90,913
O
relationship between the two variables
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PART B (INDEPENDENT THINKING AND APPLICATION)
5) (KEY QUESTION) Consider the following strategic interaction between two Australia telecommuncation
companies deciding to set the prices of their 'unlimited calls' mobile package.
Optus
要
Low
Medium
High
2, 3
13, 1
10, 8
Low
17, -8
Telstra
Medium
1, 10
15, 3
High
-10, 19
3, 16
11, 9
Put yourself in the shoes of a CEO of these companies. Try to explain the business reasons behind the
relationships between the various payoffs (obviously, this is just an example, they may differ in the
real world and change over time). For example, why is Low in the payoff matrix the best response to
the opponent playing High? Why is the payoff from (High, High) higher for both players than from
(Medium, Medium)?
b. State all the dominated strategies in the game, by which strategy they are dominated, and whether
weakly or strictly. What is the equilibrium outcome by dominance, if any?
What are the pure-strategy Nash equilibria of this game?
d. In the…
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Subject:21st century
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listen to this The Economist, Adam ruins everything video, and a few other articles about using a market to help animal conservation using trophy hunting. Please write a 1 to 2-page paper about how the program alters how people look at different animals.
Paper requirements:
Size: 11
Font: Calibri
Spacing: Double
Length: 1-2
Paper Questions:
Adam ruins everything: https://youtu.be/cQh-f1rBjx4
The Economist: https://youtu.be/9y7YFjisSTg
Vice article: Link
Questions you must answer, you may write a standard paper, or you can answer the following questions in bullet point form. You must write it in an easy-to-read form regardless of how you choose to do it.
What is trophy hunting? Is trophy hunting the main reason animals are being killed off?
Why is there demand for exotic animal parts? How does this impact animal deaths?
https://www.vice.com/en/article/akgb3a/rare-rhino-horns-worth-78-million-burnt
Please describe how the program works. Walk me through all the steps.
What issues do…
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QUESTION 29
PRODUCT
product
X
product
Y
product
Z
1988
price: $2.00
2,000
price: $1.00
1,000
quantity:
quantity:
price:
quantity:
$5.00
1,000
1989
$4.00
2,500
$1.00
1,500
$4.00
1,000
YEAR
1990
$6.00
2,000
$1.00
2,500
$2.00
1,000
1991
$8.00
1,500
$1.00
3,000
$3.00
1,000
29. Given the data in the above table, what is the price index for 1991, using 1988 as the base year and using the 1988 consumption pattern (market basket)?
a) 100
O b) 153
c) 1.2
O d) 150
e) 200
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urgent part B (1,2,3)
i need it in word
not handwritten solution
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Topic:
“What are some causes of rising food prices and the challenges faced by rural farmers in Mt. Royal, Carriacou.”
A. Conduct an internet search and find three articles related to the topic above and provide the citation for those three articles.
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Chegg Home Expert Q&A My solutions
Student question
8
Time Left: 00:09:33
Table: Acme and Hardscapes \table[[,, Hardscapes's Strategies], [,High Price, Low Price], [,$600, $600, $100, $800
Table: Acme and Hardscapes
Hardscapes's Strategies
High Price:
Low Price
Acme's
Strategies
High Price
$600, $600
$100, $800
Low Price
$800, $100
$200, $200
This table presents the profits earned by the brick producers Acme Brick and Hardscapes Brick. Profits are based on the price per cube each producer sells. Acme's profits are listed first
price.
in each cell, and Hardscapes's are listed second. Hardscapes's dominant strategy is to charge a price. Acme's dominant strategy is to charge a
Ohigh; high
O high; low
low; high
O low; low
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Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
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Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office,
$60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance,
and $6,000 for other miscellaneous costs. The normal profit from running his business is
$20,000.
A) His explicit costs are $330,000.
B) His implicit costs are $170,000.
C) His economic profit is zero.
D) Only answers A and C are correct.
E) Answers A, B, and C are correct.
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To:Pricing Manager, Tri-State Region
From:Regional Vice President, Tri-State Region
Re:Revenue from EPIX
We recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we would like to potentially increase our revenue from our subscriber base. Currently we have about 15,059 subscribers, generating monthly revenue of $146,823.Some have suggested we should cut price, as customers tend to be fairly price sensitive for add-on packages. However, in this case, if we lower price for our new subscribers, we really need to cut it to all of our existing subscribers as well. I have some concerns that lowering price will be counter-productive.The marketing department calculated some subscription levels at various price points in this region, and I need you to perform the analysis.…
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A. At XYZ Restaurant, which sells only pepperoni pizza, has the cost profile:
[Note that variable costs are per pizza]
Fixed Costs
Variable Costs
General
$1,500 Flour
$0.50
Labor
Rent
$3,000 Yeast
s0.05
Insurance
$200
Water
$0.01
Advertising $500 Cheese $3.00
$450 Pepperoni $2.00
Utitilies
Total
$5,650 Total
$5.56
Based on the total variable expenses per pizza, we now know that XYZ Restaurant must price its
pizzas at $5.56 ($0.50 + $0.05 + $0.01 + $3.00 + $2.00) or higher just to cover those costs.
We also know that if the pizzeria charges $10 for the finished product, then it receives $4.44 per
pizza to contribute to the fixed costs and ultimately the restaurants overall profits.
Question: How many pizzas does XYZ Restaurant need to sell at $10 each to cover
all those fixed monthly expenses?
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Related Questions
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