Exercise.

.1 "Monopolistic competition lies between perfect competition and monopoly according to general microeconomic theory. This implies that firms in this market structure have features of both, perfect competition and monopoly". In terms of the above statement, answer the following questions:

3.1.1 Why do monopolistically competitive firms face a downward sloping demand curve? (8)

3.1.2 Compare the short-run and long-run profit maximizing positions of firms in this market structure relating your answer to the characteristics of perfect competition and monopoly. Motivate your answer with the aid of a diagram

Exercise.

Time for pharmaceutical companies to focus on 'brand equity', expert says

While the development of a COVID-19 vaccine will likely generate billions of dollars, those profits may be tempered by companies' image concerns, experts suggest. (University of Maryland School of Medicine/The Associated Press)

While the development of a COVID-19 vaccine could generate billions of dollars for some pharmaceutical companies such as Pfizer, concerns over accusations of exploiting the pandemic will likely temper profits, experts suggest.

"It doesn't really make sense to profit from this pandemic," said Tinglong Dai, associate professor of operations management and business analytics at Johns Hopkins University Carey Business School in Baltimore.

"This is a perfect time for [pharmaceutical companies] to develop their brand equity, which will serve them well for longer -term profits. In the long run, what's really important for pharmaceutical manufacturers is in brand equity. So people trust Pfizer, for example."

Vamil Divan, a senior biopharmaceuticals research analyst with Mizuho Securities, said he believes these companies are very aware of the need to be responsible for their pricing and not to overcharge.

"I think they think it's appropriate to get back the investment they made. But I imagine they are being reasonable about it," he said.

The giant pharmaceutical company Pfizer and the upstart biotech firm Moderna, which both have announced test results showing their coronavirus vaccine candidate is 95 per cent effective, have indicated they will make some profit from their ventures.

Some companies say they won't profit during pandemic

However, some other companies, including Johnson & Johnson and AstraZeneca, have pledged they will not profit from their vaccine, although they have suggested this would be limited to the time during the pandemic.

Stacie Dusetzina, an associate professor of health policy at Vanderbilt University, said for an industry that has not been popular with the public, this is an opportunity for pharmaceutical companies to get back in their good favour, at least to some degree.

"I think they have a lot going for them if they don't mess it up," she said.

Still, Dusetzina noted, "I'm sure everyone will make quite a lot of money."

Pfizer could generate billions of dollars in sales of their vaccine, at least in the short-term. (Bebeto Matthews/Associated Press)

Just how much money is difficult to determine. Michael Levesque, senior vice-president of Moody's Investors Service, said there's very limited data that would allow for a precise estimate.

"We do believe that the Pfizer vaccine will generate profits for Pfizer in 2021, but we haven't made an explicit estimate of that profit," he said.

What is known is that Pfizer, along with its COVID-19 vaccine manufacturing partner, BioNTech, will be selling the vaccine at $19.50, that two doses are needed and that it will be able to provide 1.3 billion shots worldwide by 2021.

Using that data, Cinney Zhang, an equity research analyst for Bloomberg Intelligence, calculated that in 2021, Pfizer and BioNTech could expect $24 billion of revenues. That would equate to$7 billion in profit for each company.

"This could be a windfall," she said.

Meanwhile Moderna, which has said it will charge somewhere between $25 and $37 per dose, could add almost $30 billion to its revenues, estimated market analyst Peter Cohan, writing in Forbes.

Game changer for smaller companies

Certainly for a smaller company like Moderna, the vaccine could be a game changer, said Divan. And while Pfizer is looking at some big revenue numbers,"it doesn't really change the trajectory" of the company.

Pfizer generates about $50 billion a year in revenue, with up to around $16 billion in profits, said Damien Conover, director of health-care equity research and equity strategy for the financial services company Morningstar.

The COVID-19 vaccine, he said, will likely mean a "pretty substantial windfall" for Pfizer. Some of the vaccines, even at very low price points, will generate billions of dollars, he said.

But the gross margins on those dollars are going to be much lower than a typical gross margin for a big pharmaceutical firm, he said.

"I would probably frame it: Some good profits for about one year for some firms."

Conover also noted that post-2021, the COVID-19 vaccine market could become very competitive.

"Pfizer and Moderna, I think, would have a hard time getting people to buy their vaccine at the $40 that they're going to be charging initially. So I think even those more modest profit levels will come down."

Profits for Pfizer, for example, could be affected by unforeseen expenses, Zhang said. Their vaccine needs to be stored at about -75 C, meaning escalating refrigeration costs could impact their bottom line, she said.

Latecomers into the market

Profits will also obviously depend on whether the vaccine continues to be needed, which could also impact those vaccine manufacturers coming late to the market.

Some companies, including Johnson & Johnson, have pledged they will not profit from their vaccine for the course of the pandemic.(Zeba Siddiqui/Reuters)

"It's certainly possible that some of these reach the market too late to turn into meaningful opportunities, especially if the first [companies] are very successful and are taken broadly across the population," Levesque said.

"If there is no need for revaccination, that scenario is one where some of the players who come out a bit later may not have much of a market opportunity."

However, if their vaccines prove more effective, easier to distribute and revaccinations are needed, there may be opportunity for others, he said.

"Not to mention if any of the leading players see any sort of manufacturing or safety problems emerge down the road," he said.

"So it's too early really to estimate ultimately who's the most successful or to feel any company is going to be totally excluded. It's still early days for anybody involved."

Mark Gollom

Reporter

Mark Gollom is a Toronto-based reporter with CBC News. He covers Canadian and U.S. politics and current affairs.

Question 51 (1 point)

If you were to organize a SWOT for Moderna, based upon the article, which of the following would represent the most accurate sorting of internal and external forces?

Question 51 options:

A)

Strengths: Demand for Covid-19 vaccine / Weaknesses: Government intervention/ Opportunities: 95% efficacy Covid-19 vaccine / Threats: High price

B)

Strengths: 95% efficacy Covid-19 vaccine / Weaknesses: Newer company (inexperience)/ Opportunities: Global demand for vaccine / Threats: Competitors like Pfizer

C)

Strengths: Demand for Covid-19 vaccine / Weaknesses: Demand won't last/ Opportunities: 95% Efficacy Covid-19 vaccine / Threats: Covid 19 pandemic ends

D)

Strengths: 95% efficacy Covid-19 vaccine / Weaknesses: New company/ Opportunities: Sell to third world countries/ Threats: Vaccine Failure

Question 52 (1 point)

Pfizer expects to distribute 1.3 billion doses worldwide in 2021, at $19.50 per does. This is an overview of Pfizer's:

Question 52 options:

A)

Marketing plan

B)

Place and Price strategies

C)

Marketing environment

D)

Marketing mix

Question 53 (1 point)

Johnson & Johnson and AstraZeneca have announced that they will not profit from the sale of their Covid-19 vaccines. Making such a statement would be what form of marketing communications?

Question 53 options:

A)

Advertising

B)

Personal Selling

C)

Public Relations

D)

Direct Response

Question 54 (1 point)

In the article, a university prof says: "This is a perfect time for [pharmaceutical companies] to develop their brand equity." Which of the following best describes what is meant by his comment?

Question 54 options:

A)

Pharma companies should control supply in order to create an increase in demand and price.

B)

Pharma companies have a rare opportunity to increase profits significantly.

C)

Pharma companies, with approved vaccines, possess both power and responsibility, and will be judged long term, on how they use both.

D)

Pharma companies should provide their vaccines for free.

Question 55 (1 point)

When the equity analyst quoted in the article says that at $40/dose introductory price will be hard to sustain, he is referring to a pricing strategy known as:

Question 55 options:

A)

Matching Competition

B)

Skimming

C)

Penetration

D)

Prestige.