Article Analysis Example: Competition Would Be the Best Solution to Rising Drug Prices

In the article Competition Would Be the Best Solution to Rising Drug Prices, Cyran (2016) analyzed the relationship between competition and price. Pricing refers to the process of determining what an organization receives in exchange for its goods and services. McGuigan et al (2011) noted that there are different pricing factors including manufacturing cost, product quality, market condition and competition. In this article, Mylan and Allergan are some of the firms under investigation by American prosecutors over allegations of working together to hike the prices of generic medicines. The case also involves lawmakers. However, partnering to raise the costs could be the result of reduced competition.

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The health care industry is one of the sectors where mergers have occurred. There were deals worth $368 billion in the past year. According to Cyran (2016), this figure is double the annual average in the decade before. Manufacturers of generic pills were some of the busiest firms. That has triggered concerns that survivors have employed mergers and acquisitions to form cartels and hike prices illegally. It is not in dispute that there is a huge market for generic drugs with annual sales in the US amounting to $85 billion. Some of the hikes have been intriguing. For instance, it became apparent that one fifth of the generic drugs surveyed by the Government Accountability Office had about one 100% increase in price over five years. The massive price increase explains why the health care industry has attracted the attention of the political class and law enforcement.

However, it will not be easy to prove wrongdoing. The reason for this is that evidence may be needed, for instance incriminating email. There might be nothing serious going on though. Generic drugs are produced by few manufacturers. Put differently, it means that monopoly thrives in this case. Therefore, a company could just raise the price on its volition. Competitors might just follow suit. Cyran (2016) believes that competition would go a long way in addressing this issue. Organizations provide different products of similar quality and price to protect consumer welfare. The assumption is founded on economic theory holding that organizations are not only differentiated horizontally but vertically (Kamakura & Moon, 2008). The vertical aspect portrays discrimination in product quality, assuming that top quality attracts customers. On the other hand, the horizontal aspect lays emphasis on price disparities holding that consumers prefer low-priced products or those of high quality.

In a case where every organization provides different products, consumers have the responsibility of choosing the best option based on price and quality (Januszewski et al, 2002). Therefore, organizations need flexibility in their competitive strategy so that products are provided at the lowest price and desired quality. However, although price plays a major role in consumer attraction, consumers will always focus on quality. Therefore, they will go for products with good quality and price. A major practice in competitive strategies drug companies can use is advertising.

In corroborating the views of Cyran (2016), Forder and Allan (2014) noted that how a company operates can affect the behavior of competitors, thus impact competition level locally. In principle, however, the competition level in a certain area will be largely connected with underlying characteristics of demand and supply. These characteristics include factors affecting barriers to entry and exit. Moreover, the characteristics will vary based on the geographical locations. The implication is that the competition faced by any one will be a function of these attributes in its locality and the characteristics of neighboring areas, given that they also have an impact on the circumstances of competitors.

In summary, this article supported by other studies has established that competition is the perfect remedy in addressing the price issues. An important factor for any organization is ensuring that it is chosen by consumers on a constant basis. These are the factors that will impact performance of the organization and in so doing, it is important to consider the decision-making process of the consumer. A competitive environment allows the consumers to make better choices in regard to price. Therefore, it will be crucial to ensure the concept of perfect competition is promoted at all times.

Instruction Paragraph

There is the concept of price in the first paragraph. Price is the amount of money given or expected in payment for something. Competition is also used in the first paragraph and means rivalry among organizations seeking to meet some goals including increasing profits by varying the elements of the marketing mix. Monopoly is used in the third paragraph to mean exclusive control of the sale or supply of a product. The term competitive strategy is used in the fourth paragraph to mean long-term plan of a specific organization to gain competitive advantage over its rivals. There is the concept of law of supply and demand in the sixth paragraph, describing the effect that the availability of a particular product and the desire for that product has on the price. The concept of perfect competition is used in the first paragraph to describe a situation in the market with well-informed buyers and sellers, thus eliminating all aspects of monopoly.

References

Cyran, R. (2016). Competition would be the best solution to rising drug prices. The New York

Times, November 4, 2016. Retrieved from http://www.nytimes.com/2016/11/05/business/dealbook/competition-would-be-the-best-solution-to-rising-drug-prices.html?rref=collection%2Ftimestopic%2FAntitrust%20Laws%20and%20Competition%20Issues&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=4&pgtype=collection

Forder, J & Allan, S. (2014). The impact of competition on quality and prices in the English care homes market. Journal of Health Economics 34:7383

Januszewski, I., Koke, J., & Winter, K. (2002). Product market competition, corporate governance and firm performance: an empirical analysis for Germany. Research in Economics, Elsevier. 56 (3):299- 332

Kamakura A & Moon. S. (2008). Quality-adjusted price comparison of non-homogenous products across internet retailers. International Journal of Research in Marketing. Vol. 26:189-196