Natural monopoly by setting prices equal to marginal costs

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Reference no: EM13801135

a) Tamiflu, produced by Roche, has so far been the most effective medicine to tackle bird flu. Roche was granted a patent on the drug which enables the pharmaceutical firm to charge higher prices and earn higher profits. The government knows that the patent harms the benefits of consumers, so why is it still willing to grant such a patent to the firm?

b) Monopoly is inefficient as it charges prices higher than marginal costs. Is it feasible for the government to regulate a natural monopoly by setting prices equal to marginal costs?

c) Roche plans to sell Tamiflu at higher prices in Europe and North America and lower prices in developing countries. Why does Roche adopt this pricing strategy?

d) Under what condition can Roche successfully implement the pricing strategy mentioned in (c)?

Reference no: EM13801135

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