Glaxosmithklines Retaliation Against Cross-Border Sales of Prescription Drugs

Topics: Pharmacology, Food and Drug Administration, Pricing Pages: 11 (2934 words) Published: March 17, 2010
Case 1 :GlaxoSmithKlines Retaliation Against Cross-Border Sales of Prescription Drugs

Question1: what sort of power differential separated GSK from their customers?


“GSK” According to its price differential strategy or price discrimination which is a sort of Monopolistic market power was separated from its customers, this power came from where? GSK had sufficient control over prescriptions drugs to determine significantly the terms on which other individuals shall have access to it and this power make GSK able to alter market price of prescription drugs in America.

Now I want to answer why GSK differential pricing was not successful and made separation between GSK and its American customers? as we know a firm with market power can raise prices without loosing customers ,but GSK was not successful in this case, because of several reasons(which I divide my reasons to, Marketing view, Ethical and social responsibility view and finally legality view :

1-According to the Kotler there is six necessary conditions for differential pricing ,I will discuss this section with describing these 6 necessary condition and how GSK fail about it, as follow:

1) The ability to segment the market.

2) The inability of consumers who buy at the lower price to resell product to the higher priced segment.

3) The inability of competitors to undersell the firm in the higher priced segment.

4)The cost of segmenting and policing the market must be less than the extra revenue generated by the differential pricing strategy.

5)The practice must not breed customer resentment.

6)The differential pricing must not be illegal.

In the GSK case, the firm used geographical location to segment the market (condition 1). Consumers paid a different price for the same drug based on where the drug was purchased. GSK justified the use of geographical pricing segmentation based on government price controls (in Canada and Europe) and lower wages (in Canada). Patent protection prevented competitors from underselling GSK's prices (condition 3). GSK did not incur substantial costs for segmenting the market nor policing the market (the cost of policing was shifted to the FDA as they enforced U.S. laws) (condition 4). As outlined in the answer to the previous question, the differential pricing strategy was not illegal (condition 6). Under these conditions, the differential pricing strategy utilized by GSK should have worked. However, conditions 2 and 5 posed problems for GSK. Although consumers could not directly sell pharmaceutical drugs to other consumers, the Canadian retailers were able to resell the drugs to U.S. consumers at a lower price than could be obtained by purchasing from U.S. retailers (pharmacies). Access via the Internet made it easy for U.S. consumers to obtain products from the Canadian pharmacies despite geographical location (condition 1). The availability of price data on the Internet also made consumers more aware of the price differential, thus increasing customer resentment towards the pricing strategy (condition 5).that is why customers came separated from GSK.

2- Actually the GSK action to American old patient was unethical and its social responsibility was under question, that is why the customers came separate from them, I would like to utilize three main method of ethical analysis according to describe concepts of GSK social responsibility regarding to clear customer reactions to the GSK action.

GSK was seen as a large company that was in different to needs of its customers while this stance might be acceptable or tolerable for other companies, it will not acceptable for health care firm because it will assume as an unethical behavior.

Three main method of ethical analysis:

Utilitarianism. Under utilitarian reasoning, GSK action caused the benefits from higher U.S. price included improving the company's bottom line and providing a higher return on investment to...
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