Only available on StudyMode
  • Download(s) : 591
  • Published : October 18, 2013
Open Document
Text Preview

In the United States, CVS is the largest pharmacy retail organization. This company operates over 6100 retail stores and specialty stores countrywide and has employed over 170,000 workers. There is a necessity of offering a wider range of prescription medication options and selections system-wide in a struggle for serving the consumer base of CVS Pharmacy more consistently and effectively. The purpose of this paper is to select a more realistic good or service for an existing industry. The paper will identify the market structure, along with elasticity of the product and will also include the way the pricing will relate to elasticity of the product. Furthermore, the paper will include the way the changes in the quantity supplied as a result of the pricing decisions will affect marginal cost and marginal revenue. Moreover, the paper will focus on the non-pricing strategies, and will explain the way the changes in the business operations could alter the mix of fixed and variable costs in line with the strategy.

Market Structure
The market structure of CVS Pharmacy is an oligopoly. It is a market structure in which a small number of organizations sell either differentiated or standardized products in which other organization’s entry is difficult. In this market structure, the control of the firm is limited over price of the product due to mutual interdependence (with the exception of when there is conspiracy surrounded by the organization) and in which there is a non-pricing rivalry (McConnell and Brue, 2004).   The oligopoly turn out is the most common structure of big -business as the establishment of trust was limited in the United States. Evasion of pricing rivalry has turned out to be nearly automatic with four or five larger firms accountable for most of the output of every industry. If an organization were to drop the prices, it is expected that their competition will do the same and all will undergo a lower profit. Conversely, it is unsafe for any singular firm to increase their prices as the others will hold the prices with the intention of gaining a share of the market. "The safest strategy is to never lower prices and raise prices only when there is abundant evidence that the other firms will also raise prices. When business conditions permit, the price leader will raise their prices with the expectation that others will follow (McConnell and Brue, 2004).

Price Elasticity
“Price elasticity tells how much of an impact a change in price will have on the consumers' willingness to buy that item. If the price rises, the law of demand states that the quantity demanded of that item will decrease” (Jennifer Tuck, Chron Small Business, 2013). Price elasticity of demand indicates the decrease in the quantity demanded. Elastic-demand indicates that the consumers of the goods or service are extremely sensitive to a change in prices. Generally, a product which has numerous substitutes or is not a necessity has demanded elasticity. Elastic demand indicates that the customers of the product are not extremely sensitive to price alterations. Upon analysis of elasticity of pharmaceutical products, it is certain that pharmaceutical products cannot be considered as a necessity. Medication is considered to be a basic item, essential for the prevention and treatment of ailments and disease and, consequently, they have a particular, non-substitutive tenacity and thus are not a necessity. It indicates, consequently, that they cannot be considered as elastic. (Tom Vander Beken, 2007). While it is factual for some branded goods with little rivalry, the demand for more crowded beneficial classifications where there are generic equivalents or rival satisfying substitutes can be highly elastic. It indicates that changes in price are met in relation to the quantity with larger changes demanded. For pharmaceutical makers, the primary goal is to realizing the degree of price...
tracking img