What kind of market structure is involved for the sale of medicines and vitamins in the above case? What can be said about barriers to entry in this market? b. Explain the disadvantages to the small pharmacies and your conclusion regarding long run equilibrium for these pharmacies?
Chemists at risk as prices are slashed: Big price cuts on a wide range of medicines and vitamins were promised by the supermarket chains, as 30 years of price-fixing were swept aside. Many popular products, including painkillers, cough medicines, indigestion tablets and nutritional supplements are being halved in price from last night, with reductions of between 20 and 40 per cent on many others. The Office of Fair Trading called it excellent news for consumers but the body representing small pharmacies were very unhappy with the decision. The big supermarkets trumpeted ‘millions of pounds-worth of savings’ as they competed to offer the biggest reductions.
The cuts came after the Community Pharmacy Action Group, representing small retailers, withdrew its opposition to a High Court action brought by the Office of Fair Trading. There are 13,500 pharmacies in Britain, of which 9,000 are small shops serving local high streets and rural communities.
The action group chairman, David Sharpe, said that the outcome would be a devastating blow. ‘Many pharmacists will simply not be able to survive given the
John Vickers, Director-General of Fair Trading, said: ‘This is excellent news for consumers, who will now benefit from lower and more competitive prices for common household medicines. Consumers will save many millions of pounds a year.’ The Proprietary Association of Great Britain, which represents medicine and food supplement manufacturers, said it was disappointed.
Questions:
a. What kind of market structure is involved for the sale of medicines and vitamins in the above case? What can be said about barriers to entry in this market?
b. Explain the disadvantages to the small pharmacies and your conclusion regarding long run equilibrium for these pharmacies?
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