AQA a level MICROECONOMICS

QUESTION:

Using the extracts and your knowledge of economics, assess the view that the market structure of the pharmaceutical industry is damaging for consumers.

[25 marks]

EXTRACT:

Extract C: Is the market for pharmaceuticals working well? Source: News reports, 2019 The market for most generic drugs is oligopolistic, with just two or three manufacturers making 1 each product. This enables significant economies of scale within firms, but also presents the risk of consumer interests being harmed. In 2019, US regulators accused 20 firms of colluding to raise generic drug prices by as much as 1000%. Combined with the monopoly for those drugs protected by patents, high prices and profits prevail in many parts of the industry. 5 However, pharmaceutical firms argue that they take enormous financial risks in the search for new drugs. GlaxoSmithKline has spent just under 20bn on research and development over the past five years, while AstraZeneca spent nearly 30bn. These high development costs have led to new drugs becoming less profitable over the last decade. Pharmaceutical firms also provide thousands of highly skilled jobs and a reliable and safe product for consumers. 10 Medicines and vaccines have played a crucial role in increasing UK life expectancy by 11 years since 1960. Over the last 40 years, cancer survival rates have doubled, and HIV/AIDS has been transformed into a manageable illness. UK firms are at the forefront of such developments and they make large profits in doing so. Many drugs have an extremely inelastic demand, as patients require them to maintain good health, which provides monopoly firms and 15 collusive oligopolies with an opportunity to exploit their position. If this happens, the Competition and Markets Authority has the power to tackle the problem aggressively.