Generic Competition. Merging of companies.

Question 2

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Reason why the drug maker would require stymie generic competition and why.

The drug maker wants to curb or slow the generic competition in order to reduce on cost. As soon as the generic drug gets out to the market, the people will buy it and it will be made available at a much lower cost while having the same contents as the original drug whose price is high. In order to reduce competition from generic brands, a simple tactic has been started by the drug makers to pay them off.

Approximately a time of 8 years and a cost of $100 million is used to introduce a new drug to the market. As a result of the extreme production costs, producers would wish to make as much money on the drug as possible in order to recover the input costs used in the drugs research and development. Moreover, a generic competitor has little to no research involved and therefore the costs of development are low. The formula is free to be isolated by the competitor once the product is off the patient and the drug can be recreated and sold on the market at a lower cost. The Unit 5-individual project 4 would result in extra costs which have to be paid by the company as well as the shareholders. Therefore, to prevent such, the generic competitors are paid by the manufacturers in order to have a longer profit making period. However, its vital to obtain the original money invested from the current drug users.

2) Types of legal barriers to market entry that exist for the generic.

The generic products appeal more to some buyers than others the moment they enter the marketplace. E.g. the generic products are more likely to be used in hospital pharmacies since the physicians have more knowledge and expertise needed to evaluate them. It is therefore expected that the generic rivals will make more sales. Therefore, manufacturers of new products will react more strongly to generic competition in some portions of the market than others. However, legal barriers to entry into the generic market exist. Some of them include:

Costs

Significant legal barriers

Research and development (patents)

Marketing streams including doctors agreements, health facilities to promote the drug use and proper administration of the drug by the doctor and pharmaceuticals.

3) The possible ethical dilemmas present in the example.

Among the most likely ethical dilemmas present are trade agreements. The Sherman antitrust act characterizes these as illegal actions that prohibit certain business activities which the federal government regulatory decrees anti-competitive. There is also the issue of Unit 5-individual project 5s costs. The direct refusal of the companies to compete causes the buyers to lose out and sign of unfair agreements. This results in unscrupulous business activities of paying the competitors to stay away from the market.

Question 2

Why consumer advocates have expressed concern over such merger possibilities.

Large mergers result in a lot of consumer disappointments. Consumer advocates have therefore shown concerns over this kind of mergers which would result in various economic problems. Among them include decreased competition among the firms resulting in higher products which are a cause of concern for the consumers. The merging of two telecom companies results in less market competition forcing small scale operators to pay a substantial amount for market access.

Among the main reasons why companies merge are gaining the market share, achieving cost savings and becoming financially stronger. Mergers can result in positive or negative effects on consumers depending on the industry and the market competition at the time. Some of the pitfalls that consumers have to deal with as a result of merging include:

Price increments

Merging results in the elimination of at least one competitor from the market. This enables the remaining companies to increase prices cordially.in this case, the merging of two big telecom companies causes the smaller companies in the industry to increase their prices in order to survive in the market. Consumers can also save on cost as merged entities provide the commodities or services at lower prices than their counterpart individual companies. However, a merging that results in one or two retailers serving the market would cause individuals and customers to pay more.

Variety

Merging can either increase or decrease the choices of products or services available to consumers. E.g. In this case, merging of different telecommunication companies would result in the reduction of telecommunication lines available to consumers. Mergers that involve small businesses also affect consumer choices by providing a wide selection of products to the consumers. Merging of two money-losing organizations may also lead to a reduction in the number of items available on sale as the combined entity aims to reduce the overhead costs and make profits.

Service

Merging of companies can also affect the level of customer service. E.g. the merging of two small telecommunication companies may lead to termination of customer care positions resulting in poor client relationships. It also leads to overworking of the customer service staff which results in unhappy customers and reduced profits.

Some of the highly probable ethical dilemmas present in the example are:

Information disclosure by the target company

The firm being acquired is referred to as the target company. When the negotiations commence, the managerial team of the target company is faced with the problem of how much information about the firms current activities and future plans should be disclosed. Once a clue of the competitive factors surfaces, the company would find it difficult to retain its future market share. The disclosure of negative factors would result in the other company providing a lower price to the target companys shareholders or ultimately quit the merger.

Unfriendly takeovers

One firm might choose to take another firm which is not for sale. The managerial department of the target company might see this offer of acquisition with enmity as they might lose the companys control as well as their executive positions when the management team of the bigger company takes over the administration roles. The ethical dilemma in this case for the company that proposes the acquisition rotates around shareholders benefits for both companies from the merger, generation of greater revenues and the need to outweigh the management team of the target company with the aim of remaining autonomous. However, unfriendly takeovers sometimes include companies which were strong competitors. The target companys employees may exhibit displeasure to be a part of a former rival company and decide to seek other forms of employment.

Confidentiality

Firms which are on negotiations over merging face the problem of what to tell the employees over the proposed action. The bodies involved in the merger will require to ask themselves whether or not the employees are obligated to know that there is a probable change on their lives at work. Although its expected for rumors to begin in both companies when the negotiations start, in the event that the rumors turn out to be incorrect they might impact negatively on the morale and productivity of the employees.

Termination of employees

Among the main goals of a merger is to reduce the production costs by combining certain activities of the firms involved and being able to minimize the total number of staff needed in the merged organization. However, the negative part of the task is firing employees among whom might be valued employees who are loyal to the company and have contributed a lot to the success of the companies for a good number of years. The managers who plan the merger have the task of dealing with the harsh moral aspect of whether firing people is the most appropriate action to take.

Relocating employees

Fortunate employees to be retained after the merger are likely to face the problem of relocating if the company intends to combine the operations to one central location. This might result into large amounts of hardships to families, kids having to enroll into new schools and the employees might not be interested to move into new environs. The managers who plan the merger have to put into consideration the concerns of employees who will be moving with them.

References

basu, c. (2017). How Can a Company Merger Affect Consumers?. Smallbusiness.chron.com. Retrieved 17 March 2017, from http://smallbusiness.chron.com/can-company-merger-affect-consumers-37226.html

Sherman, A., & Sherman, A. (2011). Mergers & acquisitions from A to Z (1st ed.). New York: American Management Association.