The price will come down to P E and the quantity produced will be increased to C Q. Assuming that there are no other barriers to entry after the expiry of the patent, the market will become a perfectly competitive one. Now, the market becomes more competitive and the company loses its monopoly power as the newly entered firms start to sell the drugs at a cheaper price than the monopolist firm. Now, what happens when the patent life expires?Īfter the patent life expires, other pharmaceutical companies come into the market to sell the drugs. Therefore, the pharmaceutical company can sell an M Q amount of its medicines at the price of P P during the active patent life. a situation in which the government owns and controls a particular industry and there is no competition: Government monopoly of communications is incompatible. Let's look at Figure 1, where a pharmaceutical company sells its drugs at the point where MR = MC, assuming that the marginal cost of making the drugs is constant and that the price is maximized following the market demand. This allows the company to have a monopoly in the market. Let's say a pharmaceutical company has recently discovered new drugs and has filed patents on them. 1 - A government monopoly created by patents Now that we are familiar with patents and how it works, let's look at an example of government monopolies that are created by patents.įig. As a result, Wayne now holds a monopoly on the sale of his book. He may now go to the government and copyright his work, which ensures that other people won't just copy his work and sell it unless they have his permission. Let's say that Wayne is a writer who has written a book. Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Demand.Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Monopolistic Competition in the Short Run.Monopolistic Competition in the Long Run.Behavioural Economics and Public Policy.
0 Comments
Leave a Reply. |