Market structure and conduct in the pharmaceutical industry: the case of brand loyalty

Abstract

The Pharmaceutical Industry is important both socially and economically; however, the market structure and conduct which distinguishes it have brought it under the critical eye of both the regulatory authorities and the public. This thesis describes the market structure and conduct of the industry beginning with an historical description of its development and the market theories behind it. It is from these theories that a number of characteristics and behavioural traits have been identified as contrary to the interests of society. As an oligopolistic multinational the pharmaceutical industry has been identified with high prices and profits, a lack of price competition and heavy product differentiation leading to high concentration ratios. Consumer exploitation is possible via these continuously high prices and the possibilities of ineffective, unsafe and poor quality pharmaceuticals. These outcomes emerge from the distinct organisation of various aspects of the industry, viz. research and development, promotional activities, pricing and profits, which are examined. Concerns over possible consumer exploitation have led governments throughout the world to impose increasingly stringent regulations on all of these aspects. Such regulations have significantly changed the market structure and conduct of the industry world-wide. Having established the market structure of the industry the thesis continues with an in-depth look at brand loyalty. Analysis was conducted on the strength of brand loyalty in the face of generic competition and the attitude of doctors to company promotional material. While brand loyalty continues to have an impact on prescribing its strength appears to be diminishing. The market structure and conduct of the pharmaceutical industry is dynamic, with the present industrial climate increasingly competitive for all those concerned. Nevertheless, while the future of the industry will be difficult, evidence of its previous flexibility and strength suggests it will adapt and will continue to be successful.