International Legal and Ethical Issues in Business

Running Head: CASE ANALYSIS 1
INTERNATIONAL LEGAL AND ETHICAL ISSUES IN BUSINESS
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CASE ANALYSIS 2
Task 1
Why the original producer would block competition from generic producers?
The original producer might want to prevent generic rivalry in order to reduce
possibilities of losses as a result of stiff competition. If the generic drugs reaches the market,
the public will start purchasing them because the pricing would be lower with similar quality
as the original product .Therefore, the original drug producers might choose to pay off the
generic producers as a modest technique of keeping off the rivalry. It takes approximately 7-8
years and a budget of $ 200 million to introduce a new medicine into the market. Due to such
huge capital, the producers always wish to make as much money as possible from the drugs
as they needs to return their investment.
A generic producer on the other hand does not have such high initial investment.
Once the patent for the drug expires, the competitor has the right to use the formula and
recreate the product and release it to the market at a much cheaper price. Without any added
costs on the new company, it is much easier and faster for the competitor to recoup his profits
much (Mund, 2015). To prevent such rights, the original producer pays off the generic
producer to create more time to make profits, but more importantly get back the initial
investment from the existing users of the drug.
The Types of Barriers to Market entry
Patents are important in this cases for safeguarding substantial economic benefits for
the original producers at a specified period of time. Another barrier is what is known as brand
loyalty advantage. In this case, the drug manufacturer acquires and retains the advantage of
being the first-mover because the quality of generic products is still unknown and thus it
would require comprehensive evaluation before use (Anand et al., 2011). Finally, control
over the key inputs such as the specific chemicals and the composition of the key ingredients

CASE ANALYSIS 3
is another barrier. Generic competitors will always strive to access such important
information. The original manufacturer might, therefore, choose to sell the formula at any
time he makes profits out of it , or else , he may not sell , and if in some cases reproduction is
expensive , the new firm will find it unbeneficial to enter into the market (Slim,2011).
When a generic drug penetrate the market , they usually attract a majority of the
existing buyers .For instance, Pharmaceutical agencies and HMO’s have a higher likelihood
to use generic products because they have a better understanding and expertise needed to
evaluate their quality in contrast to individual physicians (Shrank et al., 2011). Therefore, one
expects that the generic competitors would make much higher sales compared to the original
producers. That being the case, the original manufacturers will respond to the generic rivalry
much stronger in some markets segment than others.
Potential ethical dilemmas?
A possible ethical dilemma includes illicit trade agreements between the original drug
manufacturer and the generic producers. Under the Sherman antitrust act it is illegal to
conduct some commercial activities that are thought to be anti-competitive by authorities and
require the federal government to regulate them in an effort to pursue trust among business
partners(Neale, 2014).There is also an issue with pricing since businesses are directly
reducing competition and thus the buyers might lose out. Such an unfair arrangement occurs
once the original manufacturer pays off the competitors to keep them off the market.
Another possible dilemma present in this case is that the company might have used a
different brand name while marketing the product and it might have used a different
manufacturer in order to enjoy benefits and avert the entry of generic producers. Changing
the authentic brand name and the actual manufacturer might significantly reduce the returns.