What is Oligopoly?

Oligopoly, like monopoly is a market form where the market or the industry is controlled or dominated by small group of sellers/companies also known as oligopolists. It is much like monopoly where the small group is made up of major sellers/companies which collectively exert control over the supply of a particular product (good or service) and its price in the market. Since the number of competitors in an oligopoly is few, each of the oligopolist is most likely to be aware of the actions of the others and hence the decision of one company influences and is influenced by the decision of the others. Hence, strategic planning by the oligopolists needs to consider the responses of other market players as well. A cartel is a type of oligopoly in which the participating firms may employ restrictive tactics such as collusion and market sharing to escalate prices and restrict production just as in a monopoly. The OPEC (Organization of the Petroleum Exporting Countries) which has a prominent effect on the international oil prices.Collusion is a secret agreement between two or more persons to (illegally) stub competition from others by illegitimate means and firms many a times collude in order to stabilize unstable markets and reduce inherent risk in investment and development of product. Most countries have legal restrictions in place for such collusion however there has to be actual communication between companies to prove the act illegal. Mostly for collusion, there need not be a formal agreement, most of the times there may exist a market leader who informally sets the price and the other players of the industry simply follow. In some situations, competition between the companies in an oligopoly can be fierce due to high production and relatively low prices which could move the companies involved efficiently towards perfect competition. This competition can be even greater if the number of participants is more as in case of regional firms.

Pharmaceutical Industry The pharmaceutical industry is an an oligopoly due to the staggering costs of developing and marketing new drugs and because of patents that protect new products from competitors. It can cost more than $1 billion to develop a new drug, get it approved by the Food and Drug Administration and bring it to market, according to Forbes magazine. With those kind of upfront costs, only a handful of companies including Pfizer, GSK and Unilab, can afford to create and sell new products. The government grants those companies extended patents on their drugs, and these patents protect drug developers from competitors for many years.

Table 13A: Top 20 Pharmaceutical Brands in the Philippines Php billion

IMS 3Q07 Combined Philippine Pharmaceutical Index and Philippine Hospital Pharmaceutical Audit Market Leader Strategies: Pfizer Pfizer merges Wyeth On 20 July 2009, a merger agreement between Pfizer and Wyeth was approved, under which Pfizer will acquire Wyeth in a cash-and-stock transaction. The combined company is believed will create one of the most diversified companies in the global health care industry, with product offerings in growing therapeutic areas, a strong product pipeline, and leading scientific and manufacturing capabilities. Its key aim is to have the best portfolio of products, pipeline and capabilities in the industry; positioned for sustainable growth; strong revenue diversification from stable, growing areas; leadership positions in key growing therapeutic areas; and focused on delivering patient-centric, innovative therapies. Strategic priorities of the merger:

Strengthens platforms for improved, consistent and stable earnings growth (1) Definitively address revenue loss from the loss of exclusivity from hypertension drug Lipitor; (2) Forms broad, diversified portfolio of growth drivers; and (3) Supports continuing progress in establishing a lower, more flexible cost base. Drives improved performance through flexible business model (1) Focused, agile business units; (2) Backed by resources, scale of global enterprise; and (3) Significant financial resources available for investment. Extends global health care leadership (1) (2) (3) (4) Human, animal, consumer health; nutritionals; Primary and specialty care; Vaccines, biologics and small molecules; and Developed and emerging markets.

Enhances ability to meet unmet needs of patients, physicians and other customers (1) Pipeline portfolio in invest to win disease areas; (2) Enhances scientific, manufacturing and pharmaceutical science capabilities; and (3) Provides the best opportunities for world class, high performing talent. In addition, the following strategic points will be followed: (1) (2) (3) (4) (5) (6) (7) Become a leader in biologics; Enter the vaccines market; Expand and invest to win areas; Strengthen leadership in emerging markets; Create new opportunities for established products; Invest in complementary businesses; and Establish a lower and more flexible cost base.

2012 financial targets (1) Total revenues comparable to pro forma 2008 results of $70bn; (2) Opportunity for improved, consistent, and stable top-line and earnings per share (EPS) growth, and enhanced shareholder value in the short and long term; (3) Expect to be accretive to adjusted diluted EPS in the second full year after closing; (4) Annual cost synergies of $4bn expected to be fully realised over three years after closing;

(5) Low to mid-single digit revenue growth expected post 2011; (6) No drug is expected to account for more than 10% of the combined company's revenue in 2012; and (7) Substantial financial flexibility retained given strength of balance sheet. Financial highlights: Pfizer, year ended 31 December 2009 2008 2007 2006 2005 Sales ($ m) 50,009 48,296 48,418 48,371 47,405 R&D ($ m) 7,845 7,945 8,089 7,599 7,256 Net Profit ($ m) 8,635 8,104 8,144 19,337 8,085 Total Assets ($ m) -111,148 115,268 115,546 116,970 Diluted earnings per share 1.23 1.20 1.17 2.66 1.09 ($) Number of Employees -81,900 87,000 100,000 115,000

2. GSK Three strategic priorities Grow a diversified global business GSK is reducing risk by broadening its portfolio, diversifying into new product areas that show potential, while also capturing opportunities for its products across all geographic boundaries. It expects to generate future sales growth by strengthening its core pharmaceuticals business and supplementing it with increased investment in growth areas such as vaccines, biopharmaceuticals and consumer healthcare. It is also seeking to unlock the geographic potential of its businesses, particularly in emerging markets and Japan. We have made good progress on this priority, and we believe there remain many opportunities for GSK to diversify further, says Witty. (1) Drive growth in the pharmaceutical business in its core markets; (2) Deliver its vaccines forecast; (3) Fulfil the potential of emerging markets; (4) Expand its business in Japan; and (5) Grow the Consumer Healthcare business. It's important that we generate more growth with less risk, says Witty. Deliver more products of value GSK says that it is striving to build one of the strongest pipelines in the industry. It is also transforming its R&D to ensure that it not only delivers the current pipeline but also is able to sustain a flow of new products for years to come. As we move towards a more diversified business we will concentrate on developing a higher volume of mid-sized products for more clearly-defined patient populations. This will help develop a lower risk portfolio which is not dependent on the performance of one or two large products, says Witty. Steps have already been taken, with 30 late-stage assets currently in its pharmaceuticals and vaccines pipeline. Its key objective is to sustain this throughput of products over the long-term. (1) Focus on the best science; (2) Diversify through externalisation; (3) Re-personalise R&D; and

(4) Focus on return on investment (ROI). Simplify the operating model GSK is a complex organisation. We recognise that we need to simplify our operating model further, changing the way we work, removing unnecessary processes and structures which slow us down and distract us from our mission, says Witty. Its global restructuring programme is said to be a vital catalyst of its strategy. On this basis, it believes it will radically change its business model giving it the capability to support a more diverse, growing business that is also expected to be more profitable in the long-term. (1) Evolve its commercial model; (2) Re-shape manufacturing; (3) Streamline its processes; and (4) Reduce working capital We believe these priorities will enable us to navigate the coming years successfully and retain our leading-edge position as a company able to meet patients and healthcare providers needs into the future, says Witty. Financial highlights: GlaxoSmithKline, year ended 31 December 2010 2009 2008 2007 2006 Sales ($ m) 28,392 28,368 24,352 22,716 23,225 Operating Profit ($ m) 3,783 8,425 7,141 7,593 7,808 Net Profit ($ m) 1,863 5,669 4,712 5,310 5,498 Total Assets ($ m) 42,052 42,862 39,393 31,003 25,553 Diluted earnings per share ($) 31.90 108.20 88.10 93.70 94.50 Number of Employees 99,000 99,000 99,003 103,483 102,695 3. United Laboratories Unilab produced and marketed over 300 market-leading pharmaceutical brands. Its therapeutic coverage offered anti-infectives, somatics, cough-cold, cardiovascular, gastrointestinal, anti-asthma, endocrine metabolic, anti-tuberculosis, dermatologicals, vitamins/minerals, dietetics and womens health drugs. After 62 years of operations, Unilab dominated the pharmaceutical industry with about 19 percent market share in the Philippines (See Chart 1 for breakdown of market share). Its winning formula high quality medicines at affordable prices for the population has been replicated in nine countries where it has manufacturing and licensing arrangements with partners.

Unilab Finds a Strategic Market Position in Generic Drugs In 2001, the Government called on private companies to join the campaign to reduce the prices of essential drugs under GMA50. Unilab responded with its Afford-aMed programme. About 65 frequently prescribed drugs were sold in drugstores at prices reduced by ten to forty percent. The company launched a wide publicity campaign, meant to attract multinational corporations to follow their lead. GlaxoSmithkline responded with a line of products ten to fifty percent less than their regular prices.The Afford-a-Med programme was successful but unsustainable for Unilab to support. In 2002, Unilab set up its generics line subsidiary, RiteMed, in order to seize an opportunity to expand into the low-cost medicine market. RiteMed was the companys response to the Governments effort to make drugs accessible to the poor. RiteMed products offered the same efficacy and safety of leading brands at a 20 to 75 percent lower price. Its tagline was, Effective and Safe Medicines at Half the Cost. RiteMed advertised as a branded generic, building on its association with Unilab, an established manufacturer. Its advertising campaigns highlighted, GawangUnilabito! (This is made by Unilab!). It did not directly compete with the generic drugs imported from India; the Indian drugs were available only in the few Botikang Bayan outlets and selected partner drugstores while RiteMed drugs were sold in all retail outlets nationwide including the Botika ng Bayan. Drugs that were available under the governments importation programme were limited in kind and quantity. Therefore, RiteMed tried to fill those gaps as well.

The pharmaceutical industry is, on further analysis, falls under the Stackelberg model. The Stackelberg model is a scenario wherein there is a market leader for a specific product that produces a certain quantity of that product, then afterwards, the followers produce a similar product, but only produces at their own profit maximizing output, and the market leader knows this (Martin, 2010, 220). As regards the industry, there are different market leaders on different sector of the industry, e.g. there is a market leader for the medicine for hypertension, and there is another market leader for the medicine for flu, for example.

Sources: UNILABs RiteMed Initiative: Making Medicine Accessible to the Poor. Growinginclusivemarkets.org Oligopoly and Duopoly. Nano-economics.com Strategy and Financial Highlights Information from ICIS. ICIS.com Strategy and Financial Highlights Information from ICIS. ICIS.com Examples of Oligopoly Markets. Azcentral.com