Are pharmaceuticals an oligopoly?
Total US prescription drugs sales were around $235 billion in 2004, including patent drugs and generics. It can be argued that a group with ten to twelve members, the largest of which (Pfizer) has a 13% market share, and for which the top four companies control only around 34% of the market, is not much of an oligopoly. And even those leaders, as we've pointed out elsewhere, are in a precarious position as some of their best patents run out.
But a lot depends on how you look at the market, on how you cut up the market segments .The leading drug category in terms of sales is statins - cholesterol lowering drugs such as Lipitor, Zocor, Lescol, Crestor, and Provachol. These are important drugs in terms of pharmaceutical company revenues, because they are used by a remarkable high and growing percentage of the population and because they are basically lifetime drugs requiring daily use. Sales of statins grew by 12% in 2004. In that significant market segment ($15 billion), Pfizer's Lipitor had 50% of the market in 2004, while Merck's Zocor had around 30%. A very tight oligopoly indeed!
In fact, Lipitor and Zocor were the #1 and #2 selling drugs for any condition. In one critical industry segment, then, two companies had 80% of the market. In 2004, Merck introduced a new statin drug, with the brand name Vytorin, which by 2005 has over 10% of the market and climbing - just in time as Zocor loses its Zocor patent in 2006 and is likely to see generic competition.
This statin oligopoly has real power. Although there is a real generic drug solution (lovastatin) that is efficacious, a Consumer Reports study (The Statin Drugs: Prescriptions and Price Trends) estimates that US taxpayers alone could save over $8 billion if suitable generic drugs were used in place of the leading patented drugs for Medicare and Medicaid patients alone. Pfizer and Merck have managed to dominate the market, through an energetic marketing campaign and a massive sales effort directed at physicians. At the same time, Pfizer managed to raise prices for Lipitor by 5.8% in 2005.
That is the most extreme case terms of dollars, but drug companies have learned to concentrate on a half-dozen specific segments or so rather than taking the old scattershot approach. They stake out their territory by becoming one of the leading few companies in sub-markets, in vaccines such as cancer drugs, diabetes, antidepressants, ophthalmic drugs, and so on. In doing so, companies have sold off (discarded) some products while buying or making strategic alliances for others. In this way, an apparent loose oligopoly is becoming a set of smaller, tighter oligopolies.
