![]() ![]() A firm might have better technology for or a better method of producing a good or service that gives it a cost advantage. A firm might control an essential input for example, one company might control the only source of a rare earth element used in high-performance batteries for automobiles. But what are those barriers to entry, and where do they come from? There are two main sources of these barriers: (1) cost conditions that make it cheaper for one firm to produce and (2) government regulations that create legal barriers to entry that prevent other firms from competing in the same market.Ĭost advantages can come from a number of sources. ![]() Many drug makers continue to hold on to their trademarked drug names even after the patents run out and generic drugs enter the market, but the presence of the generics means that the original companies are no longer monopolists in the market for that particular drug.Īs we learned in chapter 13, the characteristics of monopoly markets are a single firm, a unique product, and barriers to entry. In the policy example above, a firm that makes the only drug with which to treat or cure a disease is a monopolist if there is no other drug available to treat or cure the disease or if the only other drugs are not nearly as effective. Learning Objective 15.1: Explain the conditions that lead to monopolies.Ī monopoly is the sole supplier of a good for which there does not exist a close substitute. Learning Objective 15.5: Explain the effect of patent protection on drug markets and the trade-off society makes to promote the development of new drugs. Learning Objective 15.4: Describe how monopolists create deadweight loss and explain how deadweight loss affects societal welfare. Learning Objective 15.3: Describe the relationship between demand elasticity and a monopolist’s ability to price above marginal cost. Learning Objective 15.2: Explain how monopolists maximize profits and solve for the optimal monopolist’s solution from a demand curve and a marginal cost curve. Learning Objective 15.1: Explain the conditions that lead to monopolies. What other way could society promote the development of new medicines?.Does the societal benefit from the advent of new drugs outweigh the cost to society from the creation of monopolies?.But it also creates a situation in which medically necessary drugs are very expensive for consumers. Providing a company the exclusive rights to sell a popular and medically important drug creates the potential for enormous profits, which gives pharmaceutical companies a very strong incentive to invest in the research and development of new drugs. The patent created a twenty-three-year monopoly in the Crestor market, for which AstraZeneca has enjoyed enormous profits the company recorded $5 billion in Crestor sales in 2015 alone. In 2016, the patent protection will expire, and AstraZeneca, the manufacturer of Crestor, will cease to be a monopolist, and generic versions of the drug will flood the market. Crestor has become one of the best-selling drugs of all time. Crestor is used to treat high cholesterol and related heart and cardiovascular diseases. ![]() In 1993, Shionogi, a Japanese pharmaceutical company, received a patent for the anti-statin medication rosuvastatin calcium, better known by its brand name, Crestor. Should the Government Give Patent Protection to Companies That Make Life-Saving Drugs? ![]() 15 Monopoly “Spilled Pills” by Zach Armstrong is licensed under CC BY-NC-ND The Policy Question ![]()
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