The Strategies of Vertical Integration in the American Pharmaceutical Industry and the Quest for Market Power

Abstract

This article reviews the vertical integration of pharmaceutical manufacturers between 1993 and 1995. The objective of these strategies was to take control of Pharmacy Benefits Managers (PBMs), to enable drug-manufacturing firms to strengthen their market power by securing an outlet for their drugs. The difficulties that appeared during these operations, and how laboratories were pressed (with the exception of Merck laboratories) to put an end to these acquisitions are analyzed. Risks of competition distortion that these strategies may lead to is also discussed. Drug manufacturing firms were not able to gain the strategic advantages, (e.g. market control), they expected because of legal limitations imposed by authorities, high penal risk and physician hostility.