Monopolistic Market Structure And Elasticity Case Study

Over the past few years the price of pharmaceuticals has been increasing at an alarming rate. Drugs such as Daraprim, which treats parasitic infections, have had startling price increases. One even increased as much as fifty times the original price in one night (Sachs, 2). These price increases have led to an increased call for healthcare reform. The microeconomics class I took last semester has helped me to understand some of the proposed reforms such as those suggested in California and Ohio. These states are considering enacting a price ceiling on all pharmaceuticals sold within the state 's boundaries which could lead to a shortage of various prescription drugs. The purpose of this paper is to explain the monopolistic competitive market structure and elasticity because they helped me understand “How to Bring Down Drug Prices Post-Election: Reforms have been proposed at the federal and state level”, by Rachel Sachs.

Ideally the pharmaceutical industry would have a monopolistic competitive market structure. There would be the brand name drug with several generic versions available, all performing the same function biologically while all being slightly different. Entering or exiting the industry would be simple and inexpensive. This would lead to a large number of independent firms, each holding a small market share. Although all of the products would be basically the same there

Elasticity is a measure of the responsiveness to change. The main types of elasticity are price elasticity of demand, cross price elasticity, income elasticity, price elasticity of supply, and elasticity of marginal revenue product, but we will not be discussing price elasticity of supply, and elasticity of marginal revenue product. Price elasticity of demand is the simplest to explain, this is a measure of how much the demand for a product changes based on the change in price. This can be calculated using the