How A Drug Patent Can Monopoly Power Essay

826 Words Feb 24th, 2016 4 Pages
1. Explain how a drug patent can confer monopoly power to a drug manufacturer. (4 marks)
A monopoly is affirm that has 25% or more of a market. A patent is a government licence conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention. The patent gives exclusive rights to firms to produce a good, thus patents are a form of barrier to entry that prevent other firms from entering the market. Any attempt to copy the product leads to fines or other repercussions which acts as a deterrent.
2. Using examples from the data and diagrams, explain two ways in which firms with monopoly power can exploit customers. (8 marks)
One way in which a monopoly can exploit customers is through patents, due to these firms having exclusive rights to produce a good for a certain period, as stated in the extract drug producers can be patented for 20 years in the EU, these monopoly firms can charge higher prices to consumers as they want to maximise their profits and the consumers would have little choice of substitutes as the firm is a monopoly thus forcing the consumer to pay the price the monopoly firm has set as it’s a price maker. Therefore monopolies reduce consumer surplus, as illustrated in the diagram due to the lack of competition, the monopolist can charge a higher price which is P1 rather than P which is what would’ve been charged in a more competitive market. A monopoly tends to be less motivated towards…

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