Porter's 5 Forces question into, difficult, therefore, question, industry

spartan1

If an analyst was assessing a pharmaceutical company’s competitive strategy, the length of the drug patent would be related to which of Porter’s Five Forces?
A) Threat of new entrants (Entry barriers).
B) Bargaining power of buyers.
C) Rivalry among existing competitors.
Your answer: C was incorrect. The correct answer was A) Threat of new entrants (Entry barriers).
Long drug patents make entry into the industry difficult; therefore this relates to barriers to entry.
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question: why can’t the answer be A? a patent would have separate you from your competitors and thus decrease the rivalry…no?

thisisbrianly

You mistyped something, the answer is A… It can’t be C because as far as the drug’s market goes there are no existing competitors.

franzino

It’s A because the moment you lose the patent protection, a horde of copycats come in and make a generic version of your drug, therefore killing your margins. From an analyst’s point of view when forecasting FCF, knowing how long that built in protection against new entrants lasts is important.
C is somewhat correct(so is B for that matter) but A is more correct, at least how they present it in the curriculum.

LPoulin133

yea i meant to type “why cant the answer be C?”
bidoffer: theres not market for the drug but you still have competitors in the same line of business…so doesnt the patent on the drug put you abiove your peers?
jlive: cant you argue that the horde of copycats will be existing competitors who already have the capex, ppe, and cash in place to quickly copy your product once your patent expires?

hinsafdar

in response to your question for jlive - they cannot enter into the market till such time that you have the patent in place. so you are restricting entry first, and the rivalry can start only after the competitors can exist in the industry. [you are restricting the egg, but are talking chicken].

ajpheif16

I selected C at first glance. Question is confusing.

lucasg85

A all the way cuz the longer your patent lasts, the longer you can compete without fear of competition (the patent is a barrier to entry in the market). C doesn’t work because presumably, there are no existing competitors because of the patent.

Chuckrox

errm….A
C: a patent doesn’t stop rivalry, it will increase it, they will attempt to lower costs, bring substitutes etc
B: ifs its that great, and they really want it, they will pay. if there’s no substitutes, buyers bargaining powers decrease