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:
neutrasteroids, fatty acids)
(acetylholine, nicotine)
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. |