A discussion on the nature of business competition

Competitive Structure The competitive structure of the sporting goods industry is that of monopolistic competition, where there are many competitors offering easily substitutable and slightly differentiated products.

A discussion on the nature of business competition

Roy Levy Executive Summary Over the last 15 years, the pricing and other competitive strategies of pharmaceutical companies have been altered by revolutionary developments in information technology, new state drug substitution laws, federal legislation, and the emergence of market institutions that include health maintenance organizations HMOs and pharmacy benefit managers PBMs.

The industry has also undergone significant structural changes that include growth of the generic drug segment and substantial horizontal and vertical consolidation e. This report first examines these institutional and structural changes, and then focuses on the nature of competition in the new environment.

The purpose of the report is to identify and discuss both possible antitrust concerns and plausible procompetitive explanations of the emerging pricing and other competitive strategies of pharmaceutical companies in this changing environment.

Definitive conclusions on whether particular strategies are anticompetitive, competitively neutral, or procompetitive are likely to involve facts specific to these strategies and must await further study.

This report is intended as an initial step in developing a more complete understanding of the competitive dynamics of pharmaceutical markets subject to ongoing informational, institutional, and structural changes. The report covers four primary areas of analysis. First, the report examines how information technology has altered competition among drug companies.

Executive Summary

Less than two decades ago, the information flows in the prescription drug industry were relatively simple. A pharmacist would fill each prescription as specified by the doctor, unless the A discussion on the nature of business competition was willing to accept a generic substitute.

A discussion on the nature of business competition

Retail pharmacies would manually order drugs from drug wholesalers, who would deliver the product and replenish their own inventories with drugs ordered from pharmaceutical companies.

Physicians obtained drug information from reports on clinical trials published in medical journals and distributed by drug company salesmen, or in their regular practice by observing the success or failure of drugs prescribed for their patients. Competition among drug companies was focused on gaining the allegiance of prescribing physicians.

More recently, as described in the report, the doctor's prescription has become just the starting point in determining what drug the pharmacist dispenses. Today, pharmacies are typically part of PBM networks that administer the drug benefits portion of health insurer plans for employers and others.

Computers linking network pharmacies to PBMs enable pharmacists to check which brand name or generic substitutions are required by the patient's health insurer, whether the doctor is prescribing according to health plan policy, what co-payment amount applies, and when drug stocks are low.

The same computer technology allows pharmacies to manage their drug inventories. The drug dispensing records of pharmacies are increasingly being used to develop new products and services. Most importantly, prescription drug usage and cost information can theoretically be merged with the patient care records of doctors and hospitals, conceivably placing significant numbers of patients in large, possibly nationwide clinical trials for existing prescription drugs.

Through disease state management DSMthe firms administering prescription drug insurance plans can learn more than was previously known about how well various drugs work, both relative to other drugs and to non-drug therapies.

This information enables insurers and other drug buyers to focus more attention on comparisons of drug alternatives and their prices. While the traditional focus was on gaining the allegiance of prescribing physicians, drug companies now also compete for placement in health plan protocols and for contracts with HMOs.

Second, the report describes how this evolving information technology, coupled with other industry changes, has increasingly prompted drug companies to charge different prices to different groups of buyers. The report also discusses the competitive implications of this differential pricing.

In recent years, price discounts offered by pharmaceutical companies have spread beyond large hospitals, the traditional recipients of discounts, to involve other segments of demand, and these price discounts may be linked to ongoing changes in the drug industry. These practices may have evolved partly because certain groups of buyers have adopted cost-containment measures similar to those used historically by hospitals.

In addition, information technology has permitted some groups of buyers to substitute more easily among alternative drug treatments. As described in the report, price differences -- two-tiered pricing i. Alternatively, these price differences may amount to competitive forms of price discrimination.

While such price discrimination may be consistent with competition, the report describes the conditions under which alternative forms of price discrimination may harm competition. In particular, competitive harm is most likely to emerge when doctors and patients have few therapeutic drug alternatives, and when entry into drug markets is difficult.

These conditions may apply to a number of drug categories as discussed in the report. Third, following the discussion of pricing and other strategies of pharmaceutical companies in this new competitive environment, the report discusses different forms of vertical consolidation that have emerged in this changing industry.

The focus of attention is on the potential for these vertical strategies to lead to anticompetitive pricing by pharmaceutical companies. The major vertical issues addressed in the report are information exchanges among vertically integrated drug companies, vertical contracting practices, and vertical integration.

Possible anticompetitive exchanges of information arise because acquisitions of PBMs by drug companies may permit more effective monitoring of deviations from price coordination arrangements within prescription drug markets. Drug companies could better monitor and detect deviations because ownership of a PBM can provide drug companies with direct information on competitors' bids and transaction prices.

Other factors necessary for effective coordination are discussed, along with possible efficiency explanations for these exchanges of information. The report also examines why vertical contracting practices and vertical integration have become more widespread, and focuses attention on how pharmaceutical companies might use these arrangements to increase drug prices.

Importantly, the computer-based distribution of drugs at retail and mail-order pharmacies crucially depends on provisions in vertical contracts between drug companies and HMOs or PBMs.

The competitive implications of key contract provisions, including most-favored-nation MFN and volume-based rebate provisions, are addressed in this report. In addition to efficiency explanations for these provisions, their possible use as devices to raise prices is considered.

For example, volume discounts in drug company contracts with HMOs could induce them to maximize their rebates by transacting exclusively with those companies offering the most attractive terms.

Exclusive dealing arrangements like this might force competing drug companies to use more costly means of marketing their drugs or could otherwise foreclose competition among them. The report outlines the conditions under which such vertical contract provisions may lead to higher prices.Well, it's almost time for the annual Snowbird migration.

(Retired Canadians heading south for warmer climes during our winter.) I've read the government is trying to stiffen rules in regards to this practice. The chapter opens with a discussion on the nature of competition and then looks at a number of competitive analyses, including the seminal work by Michael Porter on industry analysis.

Examples are given to reinforce the theory and the chapter finishes by looking at "outsourcing" as an important competitive strategy. For a startup business, creating a business plan is like creating a game plan in sports. You need to scout out all the information to create a winning strategy for the game.

While business plans. neither clearly masculine nor clearly feminine in appearance: the androgynous look of many rock stars.

Botany. having staminate and pistillate flowers in . Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement.

Competition law is known as anti-trust law in the United States, and as anti-monopoly law in China and initiativeblog.com previous years it has . Andrew Clarke is the CEO of Ground Floor Partners, a business consulting firm that helps early-stage, small and middle-market businesses grow through design and execution of sound business strategies.

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