Question

By virtue of a contract, since 2014 Pfizer has held exclusive rights - in the U.S., Europe and the rest of the world - to distribute AstraZeneca’s over-the-counter NEXIUM (esomeprazole magnesium), a leading prescription drug currently approved to treat the symptoms of gastro-esophageal reflux disease (GERD). Suppose Pfizer’s monopsony and monopoly power from this exclusive deal for NEXIUM is earning unexpectedly huge profits. Is this sufficient justification for AstraZeneca to buy out Pfizer? Explain. (1 point)

Answer 1

No.

The huge profits Pfizer is making is not a sufficient justification for Astrazeneca to buy out Pfizer. It can be one of the factors leading to the decision but not the main factor.

Pfizer needs to look at other factors too before making a decision. These include cost of opening its own company, cost of distributing the drug etc. Only if it finds out that the revenues exceed costs, only then Pfizer should think of the buy out, else it would only lead to losses.