Substitutes and Complements

Characteristics	Current situation	Future trend
Availability of close substitutes	There are no closed substitutes except for cognitive enhancers with close effects. However some distant substitutes exist: Nutrients (vitamins, neutrasteroids, fatty acids) Pharmaceutical drugs (acetylholine, nicotine) Medical devices Herbal medicines (Ginkgo Biloba, Bacopa moniera, Shankhpushpi)	Surgical cell replacement (encourage the growth of new brain cells to replace dead ones).
Price-value characteristics of substitutes	Highly varied in and between groups.	The same.
Availability of close complements	Addition of complements could improve the effect of nootropics. Possible complements of non-cognitive-enhancers origin: • Fish Oil • Ashwaganda (herb). In general most cognitive enhancers can increase each others’ effect, therefore they can be considered as compliments for one another.	The same.
Price-value characteristics of close complements	They are relatively low compared to the price of the original cognitive enhancer.	The same.

Competitors and competition

Characteristics	Current situation	Future trend
Market concentration (number of firms, concentration ratios, HHI)	Market is underdeveloped; therefore the concentration is rather small.	As the market evolves, the concentration will increase, and the competition will become more intense.
Market growth	Slow but stable growth.	Market growth is expected to accelerate as more ethical and legislative considerations concerning cognitive enhancers are improved.
Cost differences (among firms)	Larger firms have lower average costs as a result of economy of scale. Variable costs do not differ much among firms while fixed costs for research and development vary abruptly.	The same.
Product differentiation	High. All products have different features, different effects and uses.	As the market saturates, product differentiation is expected to increase on the long run.
Price differences	Prices vary highly in and between groups as a result of lack of close substitutes and large product differentiation.	Price differences could be reduced only slightly, in case product differentiation decreases.
Excess capacity	Not important. Marginal costs are minimal, capacity is virtually not limited.	The same.
Are prices and terms of trade transaction observable?	Yes. Prices are observable for distributors, terms of transactions are openly stated.	The same.
Can firm adjust prices quickly?	Yes, if a cognitive enhancer is in production (not on development stage). Production cycle is short, so the firm can respond to market changes quickly.	The same.
Type of competition (price, quantity, simultaneous, sequential)	Competition is very low as a result of high product differentiation. The competition is not price-based, it’s more for product awareness. Firms are independent on each other moves, therefore the competition is simultaneous.	As the market evolves, competition can start to be sequential and price-based.
Leadership pricing?	There are no benchmarks, since each cognitive enhancer is unique.	As market concentration increases, industry leaders will dictate prices.
Tacit collusion (actual and potential)	There is no tacit collusion on the market, since there is virtually no competition due to patent protection. However, when a patent expires, several new players enter the market of the particular product, and in result there may be some possibilities for tacit collusion. However the demand for general drugs (technology available for everyone) is quite enough and the average costs are relatively low (no research costs), therefore firms will have enough space for profit – since the price usually remains the same as of the first firm (the original patent holder).	The same.
Antitrust litigations	Antitrust laws are not relevant to cognitive enhancers market since the products are protected with patents, and firms do not create trusts or cartels.	As competition increases, firms can unite into cartels, but more likely the firms will be subjects to mergers and acquisitions. Since fixed costs are very high, the most expected way of market evolution is growing consolidation, and not cartels. Therefore it is not antitrust legislation which should be mainly considered, but the antimonopoly legislation.

Threat of Entry

Characteristics	Current situation	Future trend
Importance of reputation and brand loyalty in purchase decision	Extremely high both for pharmaceutical companies and research institution.	Will become even higher as the market will become more developed.
Entrants' access to distribution channels	Difficult for pharmaceutical companies. If the new entrant does not have its own distribution channels, then the existing ones must be persuaded to handle the new product. This may mean using incentives, such as lower prices to the distributor. These incentives erode the profits of the new entrant and increase the height of the entry barrier. Much easier for university laboratories (the main distribution channels are internet and private dealers)	The same.
Entrants' access to raw materials	Not a problem for both. There are a lot of raw materials suppliers.	The same.
Entrants' access to technology and know-how	The highest barrier due to the strong patent policy and high cost of R&D.	Will become higher as the patent policy will become stronger in other countries
Entrants' access to favorable locations	Access to large drug-store channels is relatively free, but it requires good reputation.	The same.
Experience-based advantage of incumbents	Incumbents have a big experience-based advantage, due to their well-regulated supply and distribution channels, skilled personnel, R&D resources, developed brand.	The same.
Network externalities	Not relevant, since there are no direct advantages of being in a network of cognitive enhancers users.	The same.
Government protection of incumbents	High. Government can control entry into the industry, limiting or even excluding entry by legislative measures. Licenses, patents, limited raw materials (for narcotic drugs) are major tools used throughout the world. Though, of course, the level of government protection varies across the countries.	May become higher if the patent law becomes stronger in the producing countries.
Perception of entrants about expected retaliation of incumbents	As far as the entry barriers are high in the countries with strong patent law (such as US, the UK, Germany and Japan) and much lower in other countries (such as Russia) the reaction to the new entrants to the market would be fierce in the countries with strong patent law and mild in others. This is the reason why more nootropics producing companies appeared in Russia during the last several years.	The same.

Дата добавления: 2015-11-14