fbpx
loader image
market share

Market share or market share: beyond the size of the slice of the cake

Mabel Moreno
Mabel moreno
Economist, Esp Statistics, MSc Economics
HEVA Manager - Sanofi
Teacher - University Foundation of Health Sciences

A bass market share or a small proportion of market share can be interpreted as the signal of the failure of a marketing strategy. Economic theory goes further and can allow us to see another interpretation of the behavior of the pharmaceutical market.

Health technologies move in one market: that of health services. Theoretically, the market is a context in which all exchanges of goods or services take place. In this sense, the number of transactions of a company determines its degree of participation in the market.. This participation is a simple but fundamental element for the study of a field of economics known as industrial organization (1). This studies the strategic behavior and the interaction between companies to determine the structure of the market to which they belong (2).

 

The foregoing allows us to identify various market structures: a monopoly describes a situation in which a company represents 100 % of its market transactions; that is to say that it completely dominates the market share. In contrast, some companies that each represent between 20 % - 40 % of transactions allow an oligopolistic market structure to be described. Finally, market shares below 20 % for each company could refer to a very particular market structure, which is the market for monopolistic competition (1).

 

We can identify a series of characteristics related to markets in monopolistic competition (3, 4):

 

  • There are a large number of buyers and sellers.
  • Each company makes independent decisions about its price and its production.
  • The information is available to companies within the market, but it is not perfect.
  • The entrepreneur has a central role due to the risks associated with decision making.
  • There is no high level of barriers to entering or exiting the market.
  • Companies can determine the price, although the industry price can be a guide, or there may even be regulation.
  • Products differ beyond their price, because there may even be similarity between them (without becoming substitutes). This differentiation implies that companies must invest in advertising or in marketing, or in other areas that allow them to position themselves before buyers from the differential values of their products.

 

So, going back to health technologies, if within them we focus specifically on the pharmaceutical industry, we can see the similarities that it has with respect to the characteristics of the market in monopolistic competition.

 

A study published in 2019 (5) used two recognized applied economics indices to measure the structure of the global pharmaceutical market.

From the point of view of market share o the market shares of drug-producing countries: the concentration index (CR) Concentration ratio) and the Herfindahl-Hirschman Index (HHI). Both the results measured with the CR and the IHH showed that, on the export side of the world pharmaceutical market, the market share it is distributed among 15 - 20 countries. The structure on the export side has been evolving towards an open oligopoly, although there are still four countries that have a monopoly on the 45% of the market.

 

In contrast, the same study also showed that, on the import side of the world pharmaceutical market, these are evenly distributed among 15-20 countries. In other words, the structure of the importing side of the world pharmaceutical market is monopolistic competition; that is, the number of competitors in the world pharmaceutical market suggests that the import side is more competitive than the export side. Therefore, it is the importers and not the exporters that dominate the world pharmaceutical market (5).

market share2

Graph 1. Top 10 Pharmaceutical Companies by Market Share, 2018

 

Another interesting way to see how market shares determine the structure of the pharmaceutical market is through market share calculated in 2018 for those companies that lead the world pharmaceutical market (6):

 

From Graph 1 it is possible to observe that the behavior of the ten companies with the largest participation in the pharmaceutical market is distributed approximately uniformly.

 

It is important to highlight…

that from this information it is not possible to analyze the structure of the different segments of the pharmaceutical market, nor their corresponding niches or sub-niches. Nor can a generalization of the structure of this market be made between countries from this information. However, what does seem to be observed is that the world pharmaceutical market has a structure that is not so far removed from the competitive market, as one might initially suppose.

 

In this sense, it would be worth asking, if the struggle of pharmaceutical companies within the segments and market niches to capture more market share, in conjunction with the demands generated by drug price regulations throughout several countries, in addition to the coexistence of multiple public and private health insurance mechanisms, - ultimately, a constant interaction between State-market-cooperation-, It may be the answer to bring us as a society closer to a competitive behavior of the markets.

 

So, speaking on a highly aggregated level, relatively small and evenly distributed market shares, far from being weaknesses of marketing strategies, appear to be an achievement of the multiple interactions surrounding exchanges within the pharmaceutical market.

 

* "The writer of this post is participating as an expert guest" *

Other blogs readers viewed

References

1.  The New Palgrave Dictionary of Economics. 3rd. edition. Macmillan Publishers Ltd; 2018.

2.  Industrial organization [Internet]. Policonomics. [cited 2020 Jul 19]. Available at: https://policonomics.com/es/organizacion-industrial/

3. Market structures: Monopolistic competition [Internet]. Policonomics. [cited 2020 Jul 19]. Available at: https://policonomics.com/lp-market-structures-monopolistic-competition/

4. Monopolistic competition [Internet]. Economics Online. [cited 2020 Jul 19]. Available at: https://www.economicsonline.co.uk/Business_economics/Monopolistic_competition.html

5. Hosein S, Hasan Y, Mehralianc M, Bahlol R. The Structure of the World Pharmaceutical Market: Prioritizing Iran's Target Export Markets. Iran J Pharm Res IJPR. 2019 Jan 1; 18 (1): 546-55.

6. Top pharmaceutical companies: Ranking the top ten by market share [Internet]. Pharmaceutical Technology. 2019 [cited 2020 Jul 21]. Available at: https://www.pharmaceutical-technology.com/features/top-pharmaceutical-companies/

Share on facebook
Share on twitter
Share on linkedin
2 Comments
Inline Feedbacks
View all comments
Martha Moreno6
1 year ago

I would like to know about the Latin American market participation in the hospital sector

Featured posts
Have a similar project

Schedule a video call and let's talk!

Subscribe to our blog