Due to patents, Pfizer and other companies in the pharmaceutical industry are not always competing in a monopolist’s competition. When a business has a patent they are the only manufacturer who can produce the product until the product expires, so it is clear that the firm can act as a monopoly while in control of the patent. As a monopolistic company, the company has market power, giving it the capability to adjust the market price of a good. The main goal for a monopolist and business owner is to maximize their profits, however, there are rules they have to abide by. The monopolistic companies still have to keep up with the market demand curve. The point at which they decide to produce will rest on their own acidities of revenue, risk and effort. The company also needs to know the price elasticity of the curve: the greater the price elasticity, the more a company such as Pfizer will struggle to establish high prices and a high volume.
Although monopolies appear damaging at times, there are arguments that they are an advantage to society. Monopolies in the pharmaceutical industry drive companies to pursue research and development (R&D) efforts to gain new patents. According to a 1992 study, among the 24 US. Industry groups, pharmaceuticals dedicated 16.6% of their amounts to basic research, while all other industries averaged at 5.3% (Sherer 1307). This fact validates the incentive pharmaceutical companies have to get a patent and acquire more power. Pfizer encourages R&D because of the incentives and a want to obtain patents to receive more profit. Pfizer has to promote itself to be successful, creating a good brand image that consumers will trust. If the company can advertise successfully, more consumers will purchase their products. Pfizer must also be generating products efficiently in order to save and use existing resources, while manufacturing their products at low costs to stay competitive.
Since Pfizer functions in a monopolistic competitive market and plays a major role, they are able to charge high prices on prescription drugs. Many consumers, especially seniors, feel that these prices are too expensive and cannot afford to purchase many of the brand name drugs. Pharmaceutical companies often justify their prices, claiming prices are high so they can continue R&D. Companies also claim they need to increase revenue in order to offer consumers with the latest and greatest quality drugs. Pfizer is no different, claiming that if they cut prices the R&D budget will be greatly affected. In an effort to keep prices lower, Pfizer limits resources devoted to the R&D department so they can make up for the loss in revenue.
Critics outside the pharmaceutical industry still question Pfizer’s reasoning for high prices. As a publicly owned company, Pfizer must release their data to the public. The stockholders have a right to know about the progress of the company. This material benefits the public by allowing...