In most prescription drug markets in the US, the expiration of a patent on a brand drug is followed by the entry of generic drugs at substantially lower prices. The generic drugs are bioequivalent to the brand drug. In this exercise, we will analyze the market for a brand drug. "RelaX" that was launched in the US for the treatment of hypertension (high blood pressure). RelaX lost patent exclusivity about 14 years after its introduction. Immediately, generic drugs under the (hypothetical) chemical name "Chilorotril" entered the market. Our goal is to interpret the following elasticity matrix to understand how sales of each drug respond to price changes, as well as the nature of price competition between the brand and its generic equivalent: Here is more explanation about the variables in the table: - Brand Price: Wholesale price per prescription of RelaX - Generic Price: Wholesale price per prescription of Chlorotril - Brand Expenditures: RelaX odyertising expenditures on salesforce visits to physicians. - Brand Meetins: RelaX odvertising expenditures during physiclans meetinas and events - Generic Expenditures: Chlorotril advertising expenditures on salesforce visits to physicians - Generic Meeting: Chlorotril advertising expenditures durins physicians meetings and events * "n.s." means non-significant. For example, the "n.s." in the first row means that "Changes in the Brand price do not change Generic sales" To complete this Assignment, create a post in which you answer the following 4 questions: 1. Are the elasticities face-valid? - Brand Price: Wholesale price per prescription of RelaX - Generic Price: Wholesale price per prescription of Chlorotril - Brand Expenditures: RelaX odvertising expenditures on salesforce visits to physicians - Brand Meeting: RelaX advertising expenditures during physicians meetings and events - Generic Expenditures: Chlorotril advertising expenditures on salesforce visits to physicians - Generic Meeting: Chlorotril advertising expenditures during physicians meetings and events " "n.s." means non-significant. For example, the "n.s." in the first row means that "Changes in the Brand price do not change Generic sales" To complete this Assignment, create a post in which you answer the following 4 questions: 1. Are the elasticities face-valid? 2. Include in your post a paragraph identifying what you learned from this elasticity matrix about the price responsiveness of the two drugs to their own prices and the nature of price competition between the drugs. 3. Include a description of what you learned about the effectiveness of RelaX and Chlorotril advertising efforts. 4. Imagine that each company can spend $1000 on advertising. How should they allocate this budget to get the highest Return on investment (ROO) and win the market competition (or survive for a longer time)? (tip: When you allocate the budget for each company. you should consider the effect of each advertising effort on the firm itself, and the effect on the competitor as well)
