Question

In: Economics

Patents are granted for 20 years, but pharmaceutical companies cannot use their patent-guaranteed monopoly powers for...

Patents are granted for 20 years, but pharmaceutical companies cannot use their patent-guaranteed monopoly powers for anywhere near this long because it takes several years to acquire the Food and Drug Administration (FDA) approval of drugs.

  • What purposes do barriers to entry created by the government serve?
  • What are other barriers to entry in the pharmaceutical industry?
  • Should drug patents be extended to 20 years after FDA approval?
  • Explain what would be the costs and benefits of this extension.

Solutions

Expert Solution

  1. the barriers to entry created by the government in the pharmaceutical companies are very important as it prevents the emergence of quack companies which may risk the lives of people due to poisonous productions.
  2. other barriers include the acquisition of the abbreviated new drug application (ANDAs) which takes up to 17 months before approval.
  3. no. the drug patent should not be extended up to 20 years even after approval by the FDA because drugs are a very sensitive substance which when left in the hands of the manufacturers to control, may monopolize it and hence leading to health hazards to the users. the patent on drugs should, therefore, be very limited and timely for frequent check-ups and renewals to meet the health standards.
  4. one of the major barriers for the pharmaceuticals is the cost of entry and brand name. in case the patent is increased, the cost will be very high hence hindering the new firms from entering the market. this will mean that the existing companies will be operating a monopoly market structure which will negatively affect the consumers.

Explanation:

the pharmaceutical industry is one of the most sensitive industries owing to the fact that they produce products that directly affect the lives of consumers. this makes a lot of interest to be developed in it as a result as the government is not willing to risk the lives of people at the expense of the lives of people.

the patent's rights of the pharmaceutical industries are therefore restricted so as to ensure the quality of the product which is released in the market for use and this is also aimed at making the market highly restricted for entry of other firms.


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