Driving Forces in the Pharma Industry

Driving Forces In The Pharma Industry

The pharmaceutical industry is capital and research intensive a great deal of resources goes into producing these drugs and the pharma firms must recover their investment to remain a viable entity. They have to contend with the bargaining power of its customers who appears to be the dominant force in this industry. When we think of drugs, most Americans think they are priced very high and as a consumer we don’t really have a much power in dictating the prices of these drugs, however organizations such as the Medical Care Organizations(MCOs) can exert a great deal of power over the pharma industry. With the MCOs buying 75% of drug products produced in the US, pharmaceutical firms cannot charge excessively high price or MCOs might look to other alternatives that are available in the industry. Furthermore, membership in the organization is critical. If a particular drug is not included in the organization list of approved drugs that firm will lose roughly 75% of its profits. We can think of the MCO as cartels that setthe market price and firms have to negotiate with the cartel if they want to raise their prices. The cartel can effectively lower the firm’s profit by placing an embargo on the firm’s product. Therefore the firm in the long run with high R&D cost cannot