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.

Resources and Suppliers

Characteristics	Current situation	Future trend
What are the most important resource markets used by this industry?	Chemical industry, R&D, labor market	Chemical industry, R&D, labor market
Are these markets concentrated? Who has more market power at these markets: buyers or sellers?	Markets are not concentrated, there is a large amount of small companies, producing the needed raw materials; the R&D market is more concentrated, there are less suppliers, so suppliers may have more power over buyers (in a case when a pharmaceutical company needs some sophisticated research to be done on a regular basis, it usually would try to create its own R&D department), in the labor market a buyer (a pharmaceutical company) still have more market power, than a supplier.	The situation is likely to stay the same
Do firms in the industry purchase relatively small volumes relative to other customers of supplier? To sales of typical supplier?	Suppliers usually works with a particular buyer, so the buyer may purchase up to 100% (not necessarily, though) of the supplier product, which means the supplier does not have any other customers. In any case, the buyer usually purchases large volumes of the supplier’s final product.	The situation is likely to stay the same
Are there substitutes for these resources?	For chemical ingredients it depends on technology: if it is flexible, there is no problem to find a substitute (because there is a large number of chemical suppliers), if it is quite strict (an ingredient cannot be replaced by any other not influencing the quality of final product), there is no substitute. Situation with R&D is more complex, however, usually unique research is conducted by large companies which have their own R&D department, for smaller companies it may be quite difficult to find a substitute for R&D.	The situation is likely to stay the same.
Credible threat of forward integration	No threat	No threat
Are suppliers able to price discriminate?	There is a possibility of second and third type price discrimination in the market (based on segmentation).	There is a possibility of second and third type price discrimination in the market (based on segmentation).