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  5. Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

蝌蚪网 Journal:
Applied Economics

ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)

Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

  • Charles Gray
  • Abby Alpert
  • Neeraj Sood
蝌蚪网 Journal: Applied Economics (Forthcoming)

Abstract

The pharmaceutical market has experienced a wave of vertical integration between pharmacy benefit managers (PBMs) and insurers in recent years. Using a unique dataset on insurer-PBM contracts, we document increasing vertical integration in Medicare Part D. Next, we evaluate the effects of a large insurer-PBM merger in 2015, assessing the trade-offs of vertical integration鈥揾arms to competition on the one hand and improved efficiency on the other. We find premium increases for rival insurers post-merger, consistent with vertically integrated PBMs raising costs through input foreclosure. We find no evidence of benefits to consumers of the merged firm from lower premiums.

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