Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (lists of drugs that insurance will cover) and negotiate prices with drug companies. PBMs want a wider variety of drugs available te their insured populations, but at low prices. Suppose that a PBM is negotiating with the makers of two nondrowsy allergy drugs, Claritin and Allegra, for inclusion on the formulary. The "value" or "surplus" created by including one nondrowsy allergy drug on the formulary is $228 million, but the value of adding a second drug is only $68 million. Assume the PBM bargains by telling each drug company that it's going to reach an agreement with the other drug company. Under the non-strategic view of bargaining, the PBM would earn a surplus of of s million, while each drug company would m million. Now sunnos

Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (lists of drugs that insurance will cover) and negotiate prices with drug companies. PBMs want a wider variety of drugs available te their insured populations, but at low prices. Suppose that a PBM is negotiating with the makers of two nondrowsy allergy drugs, Claritin and Allegra, for inclusion on the formulary. The "value" or "surplus" created by including one nondrowsy allergy drug on the formulary is $228 million, but the value of adding a second drug is only $68 million. Assume the PBM bargains by telling each drug company that it's going to reach an agreement with the other drug company. Under the non-strategic view of bargaining, the PBM would earn a surplus of of s million, while each drug company would m million. Now sunnos

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Pharmaceutical Benefits Managers (PBMS) are intermediaries between upstream drug manufacturers and downstream insurance companies. They
design formularies (lists 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 the makers of two nondrowsy allergy drugs, Claritin and Allegra,
for inclusion on the formulary. The "value" or "surplus" created by including one nondrowsy allergy drug on the formulary is $228 million, but the
value of adding a second drug is only $68 million.
Assume the PBM bargains by telling each drug company that it's going to reach an agreement with the other drug company.
million, white each drug company would earn a surplus
Under the non-strategic view of bargaining, the PBM would earn a surplus of
of s
million.
Now suppose the two drug companies merge. What is the likely postmerger bargaining outcome?
Under the nonstrategic view of bargaining, the PBM would earn a surplus of 3
million, while the merged drug company would earn a
surplus of s
million,

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