Score = 50
Julianna Kiklis 4, 2020 Microeconomics Week 6 Essay
March
The key idea of the article is that generic drugs, a homogenous product, are decreasing in price and profitability as the entry of producers increase and suppliers decrease ["producers" and "suppliers" are the same organizations; how can they both increase and decrease? OK, you sort of explain it below]. The generic drugs described in the article are the "bread-and-butter pills consumers often take for granted," such as antibiotics and prescriptions for arthritis and diabetes. are homogenous products. All the pills are identical and interchangeable which is why it is so easy for producers to enter this market. "Generic drugs account for more than 90 percent of U.S prescriptions." Because of all the competitors that are currently in this market, the price of pills has significantly decreased and continues to do so. This is creating an unfortunate situation for these businesses that are producing pills but are not making high profit margins to sustain a profitable business for them. "A deflation tracker developed by researchers at Evercore ISI Research shows generic drug prices are falling about 11 percent a year, while brand-name drugs are rising about 8 percent a year." This shows how easy it is for competitors to have entered this market and how their entrance is causing the price of the product to decrease. Aside from the producers, the supplying business and purchasers of these generic pills have decreased in count because of how easy it is to exit the market as well. "The consolidation has since become so extreme that just four groups now control 90 percent of drug buying in the U.S. And two of those four are joining forces to purchase generics, which likely will lower prices further." Overall, the large amount of small organizations that produce these generic pills and the entrance of big purchasing groups have cut down the prices of pills causing the manufacturer's profit margin to take a massive hit. A personal example of a homogeneous product that I frequently use are almonds. One of my sisters has a peanut allergy so we are always buying and trying out new types of almond butter. The almonds used to make the different brands of almond butter are the homogenous products because they are all identical, grown the same way and taste the same, but are used to create products that taste different in the slightest amount just to make people buy them. However, the firms that distribute the almonds to other companies all have the same selling price because they can't afford to go up or down because of how replaceable the product is and how easy it is to enter and exit the growing business of almonds