An overview of the pharmaceutical market: structure, behavior, returns, and government intervention

Abstract

The pharmaceutical industry has been a subject of a lot of academic research, not only because of its high research & development activity, but because of the high profits that the firms have achieved through the last decades, through patent competition, marketing strategies and, sometimes, overpricing of certain pharmaceutical products. This thesis is an attempt to determine how the pharmaceutical industry operates as a whole, and how this affects the society’s welfare as a whole, by examining the structure of the market, in terms of concentration, barriers to entrance through patent diplomas, and pharmaceutical benefit management. The market behavior is also in question, and more specifically, how the firms decide on optimal research & development activity, as well as expenditures in marketing, and the price the final product will have. Finally, after examining the returns of the pharmaceutical market, in terms of products and firm profits, the intervention of government agencies is examined, and more specifically the refunds the companies ought to pay, in the form of clawback payments.