There are not any close substitutes for pharmaceutical products.

Goods without close substitutes

tend to have more inelastic demand because it is not easier for consumers to switch to other
products.
Pharmaceuticals products are necessary goods. Necessities tend to have inelastic demands, and
luxuries have elastic demands.
It is not a narrowly defined market. Narrowly defined markets tend to have more elastic demand
than broadly defined markets because it is easier to find close substitutes for narrowly defined
goods.
Pharmaceuticals products have elastic supplies because firms that produce them can run their
factories longer in response to a higher price.
Supplies are more elastic in the long run. In short periods, companies cannot easily change the
size of factories to make more or less. In longer periods, companies can build new factories. New
firms can enter. Thus, in the long run, the quantity supplied can respond substantially to price
changes.

Market structure can be broadly determined by entry and exit conditions. Technology,
innovation, capital, legal rights, brand awareness and loyalty of target consumer group are the
barriers to mobility factors for pharmaceuticals industry, from both production and import
perspective, which create advantage for large leading pharmaceutical firms over smaller
nonleading rivals. The manufacturing firms are using patents to ensure their profit by making the
entry difficult for the new entrants. As a result, there is no active competition in the market for
lowering the price and improving quality. Following are some other hurdles that any new entrant
into the pharmaceuticals industry will face due to the business characteristic and national
standards and regulations.

Firstly, pharmaceutical companies spend an unusually large percentage of their revenues in

promoting their brands to the physicians. Promotion-to-sales ratios for prescription drugs,
typically range from 10 to 20 percent of sales, making them among the most heavily promoted of
all manufactured goods (which in average allows only 1% of revenue in promotional activities).
Secondly, pharmaceutical companies mostly concentrate their marketing efforts in a single form
of marketing, which typically represent some 70 to 80 percent of industry marketing
expenditures. Finally, characteristics drugs are essentially fixed, determined by the chemical
properties of the particular molecule that constitutes the drug. Since changing the dosage,
frequency, or other physical characteristics of a drug requires Food and Drug Administration
(FDA) approval, this further limits the ability of pharmaceutical firms dealing with to compete

against each other strategically by changing the characteristics of their products. The FDA also
strictly regulates the advertising and promotion of prescription drugs. Total marketing by all
firms reduce the degree of product differentiation in the market and dramatically raise the cost of
entry to potential competitors.

The principle of absolute advantage refers to the ability of a party (an individual, or firm, or
country to produce a greater quantity of a good, product, or service than competitors, using the
same amount of resources. Since absolute advantage is determined by a simple comparison of
labor productiveness, it is possible for a party to have no absolute advantage in anything. As the
big pharmaceuticals companies, such Square, Incepta, Beximco pharmaceuticals etc. have
greater organizational, technological, technical and distributional advantages, they have absolute
advantage regarding the smaller companies having lesser organizational, technological, technical
and distributional competencies. On the other hand, the theory of comparative advantage is an
economic theory about the work gains from trade for individuals, firms, or nations that arise
from differences in their factor endowments or technological progress. In an economic model, an
agent has a comparative advantage over another in producing a particular good if they can
produce that good at a lower relative opportunity cost, i.e. at a lower relative marginal cost prior
to trade. The pharmaceuticals companies of Bangladesh have comparative advantage than that of
many other countries due to cheaper raw materials, labor etc. Moreover, these companies have
lesser opportunity cost than those of many other countries. That is why Bangladeshi companies
are capable of exporting pharmaceuticals products to other countries.