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Patent Protection: Pharmaceutical Industry

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Using supply and demand and competitive analyses, explain what happens to a pharmaceutical company's revenues and profits from an individual drug once it loses its patent protection. Then identify at least one strategy the company can use to mitigate the losses; be sure to support your suggestion using economic analysis.

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Step 1
When a pharmaceutical company's individual drug loses patent protection, the individual drug can be made by other pharmaceutical companies. This increases the supply of the individual drug and the supply curve of the drug shifts to the right. The point of equilibrium between demand and supply is now at a far lower price than what it was before (a). The company's costs remain the same but the marginal revenues decrease. The profit of the company from the individual drug drops sharply after it loses patent protection. When several other companies make ...

Solution Summary

This posting gives you a step-by-step explanation of pharmaceutical company's revenues when patent protection is withdrawn. The response also contains the sources used.