Assignment
Price discrimination in pharmaceuticals In April 2001 the Office of Fair Trading (OFT) in the UK imposed a penalty on Napp Pharmaceuticals Holdings Ltd, a Cambridge-based pharmaceutical company, for abuse of its dominant position in the market for a drug called MST, a slowrelease morphine product used to treat severe pain in cancer patients. The company controlled 94% of the overall sales of the drug, which was sold to two distinct markets - the community segment and the hospital segment. The community segment involved MST sold to pharmacies who, in turn, supplied them to patients through GP prescriptions, while the hospital segment involved sales of MST direct to hospitals. The OFT Report commented that GPs were strongly influenced by the reputation of the product and were reluctant to experiment with new products of which they had no direct experience. In addition, for GPs, cost seemed to be ‘rarely considered in terminal care pain relief'. On the other hand, hospital doctors were found to be more willing to accept ‘intra-molecular substitution' - that is, they were willing to use any brand of a single molecular product to treat their patients. The OFT Report found that the price which Napp charged for its 5 mg tablets of MST to the community market was 70% higher than its price to the hospital market - where prices were set at below average variable cost (AVC). The OFT found that Napp had engaged in anti-competitive activity and proposed that the company should immediately reduce the price of MST tablets to the community sector. It was estimated that this would save the NHS around £2m annually.
Question
1 What indicators are there that Napp had monopoly power in the market for MST?
2 Identify the factors which would ensure that Napp could apply price discrimination policies in this market.
3 How was Napp keeping other rivals out of the market?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.