Cipla Case

ASSIGNMENT 4

This assignment is to be done in your assigned teams. One submission per team.

If you wish, you may write your answers in a bulleted form.

Credit will be awarded for clarity and comprehensiveness. Neither brevity nor length is rewarded as an end in itself.

Please read the Cipla case.

1.Economic Analysis

(a)The grant and exercise of a patent constitute a “market failure”. Which of the assumptions behind an ideal market is/are violated? Explain briefly.

The idea of a free or ideal market economy is the one based on the forces of supply and demand to dictate prices and the allocation of resources with very little or no government control. In other words, it is the form of a market economy where buyers and sells are allowed to transact freely without coercion. It is based on assumptions such as free competition, price determination by the interaction of demand and supply, free from government regulation, no or little barriers to entry among other things.

A market failure is the situation where by the production or use of goods and services or resource allocation by the market is inefficient. Thus, the opportunity cost of all players or the resources invested in the market is high. Causes include but not limited to monopoly power, public goods and externalities.

Patents are exclusive rights conferred by law or government on a firm or company to enjoy usage, produce, and sell a product, benefit from an invention for a nonrenewable period of time usually 20 years without interference or infringement by other parties. What this means, is that, and as long as one firm enjoys this right, on other person, or company is allowed to produce or use same process thereby creating a monopoly.

As mentioned above, patency rights can create a monopoly and as a result one of the major conditions for a free market, free competition is violated. Once a monopoly is created by law, this monopolist is shielded from competition and as such arbitrary...