What is the likely post-merger bargaining outcome

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Reference no: EM131957770

Problem

Pharmaceutical Benefits Managers or PBMs are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (list of drugs that insurance will cover) and negotiate prices with drug companies. PBMs want a wider variety of drugs available to their insured populations, but at low prices. Suppose that a PBM is negotiating with two non-drowsy allergy drugs, Claritin and Allegra, for inclusion on the formulary. The "value" or "surplus" created by including one non-drowsy allergy drug on the formulary is $100, but the value of including a second drug is only $30.

Now suppose the two drug companies merge. What is the likely post-merger bargaining outcome?

Reference no: EM131957770

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