Reference no: EM131108280

The following is a case study using a recent event: CVS versus Walgreens: An interesting recent case involves two pharmacists CVS and Walgreens. Rather than a situation where the two indulge in a competitive battle against each other over advertising or a price war, they battle against each other on the services offered. In early June 2010, Walgreens announced that it would “no longer participate in new and renewed benefit plans from its rivals (CVS) drug benefits unit” (CNN Money, June 7 2010). The main grievance of Walgreens was CVS Caremark’s Maintenance Choice Plan which started requiring patients that have chronic medical conditions to fill their prescriptions at CVS pharmacies only rather than giving them the choice to fill it at Walgreens (or other pharmacies). As a result of this announcement both companies’ shares fell — CVS fell 8% and Walgreens fell 2.7%. As a response CVS in a couple of days decided to drop Walgreens from its pharmacy benefits plan, which would force some of its benefits customers to pay a much larger amount to get their drugs from Walgreens, leading to a potential loss of customers for Walgreens. As a result CVS shares fell 1.5% and Walgreens fell 3%. Eventually, about a week later the two pharmacies decided to end their war, coming to a compromise agreement the financial terms of which were not disclosed. As a result both firms saw their stock values increase. Briefly comment on this example as an application of the Prisoners Dilemma game