COMM 5032 EL-12 – Economics

Instructor: Dr. James Bowen

Module 6 Group Summary

Group D

 Group Members: 

Stuti Vijaykumar Karia

Robyn Roy-Holm
Brian Schwan
Tirth Parikh

Due Date: June 11, 2023

Traditional economic thinking views monopolies as having little incentive to innovate
due to the lack of competition. The Economist article “Slackers or Pace-Setters?” argues
that monopolies may have more reasons to innovate than traditionally thought.

What role do barriers to entry play in determining whether a dominant firm is a

“slacker” or a “pace-setter”? Explain.
Barriers to entry play a significant influence in deciding whether a dominant business sets the
pace or lags. Government restrictions, finance, and market share are examples of entrance
hurdles.  As the economist (2004) points out, not all monopolies are bad; having a bigger
market share may raise expenditures for R&D, which boosts innovation and inspires
enterprises to stay on top.  With low entry barriers and huge firms as rivals, smaller
competitors may enter and compete. Even if their product is superior, smaller enterprises may
struggle to compete due to a lack of resources.  Because of the financial resources accessible
to larger organizations, the larger firm would frequently purchase the new market participant
to add to their inventive catalog and increase product offers.  On the other hand, if there are
high barriers to entry, huge firms may get comfortable and slack off since they know it is
exceedingly difficult for competitors to enter the market. This might be due to restricted
patents; think how much easier access to diabetes treatment would have been in Canada if the
inventor had elected to keep possession of the patent rather than sell it to a university for $1.
There would have been less breakthroughs in the medical industry to help people with
diabetes, which might have slowed the development of improved insulin treatments due to the
high barrier of entry for rivals.

   
What kinds of barriers to entry exist in the pharmaceutical industry?
Patents are a significant barrier to entry in the pharmaceutical sector.  They keep critical
research information locked within one company's database, preventing others from
expanding on earlier research to progress medicine development.  Although they can stifle
innovation, they can also help it by raising income and further supporting R&D efforts for
alternative pharmaceuticals to aid in disease and disability management/recovery.

How does the suggested relationship between market share and innovation complicate
matters for regulators of monopolies?
It complicates matters due to increased revenues help support further RnD of firms which in
turn can advance service offerings. On the opposite hand, if only one firm is leading
developments within an industry or market segment, there is little competition to speed up
developments and generate new products or ideas.  Regulators need to walk a tight rope not to
stifle competition while also ensuring there is enough financial resources for firms to continue
to innovate.

Patents create temporary monopolies in order to reward innovators for their endeavors.
However, The Economist article “More harm than good” argues that patents for genetic
tests are too generous. How would producers respond to shorter patents? Discuss the
welfare implications if patents for genetic tests are reduced.
Patents diagnostics involving single genes have allowed for monopolies over testing for
various diseases. Holding patents for genetic testing has been proven to hinder public access,
as those with Medicaid are not eligible for reimbursement from the monopoly holders.
Current producers of single genetic testing are against shorter patents or removal of the
patents altogether. They are fearful that shorter patents will reduce incentives for innovation
by not luring in investors. Any company that holds a patent and therefore a monopoly does
not want to share in their success and wealth with others. Shorter patents will create more
competition in the single gene testing, with potential for less investors. Without competition
and more results, it is hard to confirm the accuracy of the test results offered today. With more
single genetic testing available, the development, accessibility and reliability of the test will
be greatly improved. Single genetic testing will also become more readily available to all
people. Reducing patents for genetic tests has many positive implications for the public. Rival
companies can flourish with competition and investors are not limited. Patents should not be
granted for naturally occurring phenomena such as disease testing.

References
The Economist Newspaper. (2004, May 20). Slackers or pace-setters?. The
Economist. Retrieved
from: https://www.economist.com/finance-and-economics/2004/05/20/slackers-or-pace-
setters
The Economist Newspaper. (2010, April 15). More harm than good?. The Economist.
Retrieved from: https://www.economist.com/science-and-technology/2010/04/15/more-harm-
than-good