Student from Department of Economics

1. In this part I would like to analysis the forces which may provide firms with competitive advantages in pharmaceutical and airline industries.

Threat of entry: Since the participation of new competitors will bring new capacity and a desire to gain market share, a barrier of entry would help existing companies to keep their profitability, especially in industries like medical or airlines. Once new entrants occur, the sales of the products of pharmaceutical firms would be affected and the entry of new airline companies will puts pressure on prices of air ticket which will largely cut the profitability of existing airline firms.

For the reason of this, a barrier of entry help to maintain a 'stable ' competition and make it possible for existing companies to keep their profitability.

Another key word should be supplier power. Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services and maximizing their profit. For example, in Australia, I found it is interesting that the air ticket price of the airline between small sized cities (eg: Amidale) are much higher than average level. I did some research and figured it out, the airline between small cities and largely controlled by few companies, as a result, they enjoy the possibility of gaining more profit by rising price. It is basically the same in pharmaceutical industry, especially when we talk about newly invented medicines.

The power of buyer puts limitation on companies' profitability. For example, if customers who travel by air face a number of choices between different service providers, the airline firms would have to cut ticket prices in order to win the competition. If majority of customers believe that the products from two pharmaceutical companies are exactly the same quality, the companies would be pushed to sell their products in lower price to keep their market shares.

Threat of substitutes may also affects the performance of companies. For example, airline companies will lose their profitability if more customers abandon the option of travelling by air and turn to coaches. Pharmaceutical firms also find them in danger while more patients stop taking pills and looking for other medical care.

Threat from existing competitors is also considerable; number of competitors is a main factor that determines the performance of a running business. Monopoly may leads to great profit (happy to see the example of Australian airlines also works here) while a large number of competitors result in a decrease in profit.

2. During the past decade, one of the constants of pharmaceutical company strategy has been increasing scale. Since the effect of medicines is hard to measure, the amount of sales seems to be the most important factor in pharmaceutical company business strategies. Andrew believes that strategy formulation is a method that senior

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