Merck Case

1. Price controls imposed by the government would have the effect of making pharmaceuticals available to more consumers, particularly those in lower income brackets who either cannot afford expensive drugs or who lack insurance to pay for these drugs. In this way, price controls would eliminate medical rationing based only on economics and make more drugs available to more individuals.

On the other hand, government-imposed price controls on the entire drug industry products are not likely to have the long-term desired effect that the government would like. While in the short-term, the supply of drugs is unlikely to be affected, since the price controls would affect drugs already on the market and would be based on current (or recent) prices, the long-term effect would be to shut down, or at least radically constrict, research and development in the pharmaceutical industry. This is because of the high cost of bringing new drugs to market. Pharmaceutical companies not only must pay for the development costs of drugs which are actually introduced to the market (and for which the patent life gives the companies some protection before the drugs are issued in generic form), but also the development costs of drugs which are never introduced to the public. The reasons for not introducing a drug can be many, but generally are attributable to the drug failing to pass the rigorous FDA approval process. Restricting the prices that companies can charge for drugs would r

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to price controls since the drug companies will be viewed as less greedy by the public at large. In this way, the public would be willing to accept fewer controls on the drug companies if they perceive that the companies are cooperating with regulators. 5. The Merck-Medco merger illustrates the importance of maintaining a diverse business portfolio when a company's primary business (drugs, in Merck's case) has a high cost structure. By eliminating the intermediary between the drug manufacturer and the consumer, Merck was able to realize increased profits. A market economist would argue that price controls are not necessary because the drug companies will continue to find ways to increase their profits without necessarily increasing prices. Quaker/Snapple Case 1. Current Quaker stockholders and speculators would benefit during the time that it takes to prove a takeover rumor false. This is because the rumor of a takeover would drive up the price of the stock in anticipation of the takeover offer, and those who already own stock could sell it at a profit. Speculators would be able to purchase the stock immediately after the rumor begins circulating, then sell their shares shortly after (and before the rumor is proved fal

Category: Business - M