Firm in a Perfectly Competitive Term Paper

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The manufacturers are merely consulted; their influence is very limited. In the end, once the price is set, they can only decide if they are willing to sell at that price or not. Take it or leave it.

* the combinations of the factors above will put pressure on the pharmaceutical companies to expand geographically as quickly as possible, in order to maximize their chances of recovering their R&D costs and making a fair profit within the time period covered by patent protection. In order to do that, they will accept in some countries prices that are far from ideal -- prices they would never accept in a true monopoly situation. In doing so, they open the gates for grey trade -- re-importation and parallel imports.

* the barrier to grey trade is formed by the combination of several factors:

* Price difference

* Trade Tariffs (where applicable)

* Cost of transport

* Regulatory considerations

* Reimbursement procedures

For example, if a HIV drug is sold in the U.S. At an annual treatment cost of 10,000 USD, and the same drug is sold in Canada at a price 10% lower, then re-importation is likely to occur.

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In the absence of trade tariffs and with a transportation cost of maximum 2%, a grey trader has an 8% trading margin to cover selling & operational costs and retain a profit. The product is likely to have been kept in Canada in the same conditions as required by U.S. laws (e.g. temperature controlled and recorded the entire time, etc.). Therefore a U.S. pharmacy can safely buy it and sell it forward to its patients.

* There may be a further limitation regarding reimbursement -- e.g. If the U.S. government only reimburses to.....

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