American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market
American Economic Journal: Applied Economics
(pp. 286–304)
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—harms 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.Citation
Gray, Charles, Abby Alpert, and Neeraj Sood. 2026. "Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market." American Economic Journal: Applied Economics 18 (1): 286–304. DOI: 10.1257/app.20240011Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
- L22 Firm Organization and Market Structure
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology