Oligopolies Part 1) One Proposed Merger Is Essay

Oligopolies

Part 1) One proposed merger is Omnicare's bid to purchase Pharmerica (FTC, 2012). The FTC has defined the industry as "long-term care pharmacy" and these are the two largest firms in that industry. The FTC has sued to block this proposed takeover. Pharmerica is the only national competitor for Omnicare. Firms in this industry work with institutions to provide pharmacy services. The industry has some fragmentation, but there are only two national players in Omnicare and Pharmerica. The FTC feels that the combined entity would have such strong bargaining power that consumers would not have adequate choice, prices would rise and suppliers would also suffer from this extreme leverage.

From Omnicare's point-of-view, the merger would give it a dominant position in its industry. Pharmerica is resisting the takeover, as this is a hostile takeover. Pharmerica would likely be absorbed into Omnicare to the detriment of its own operations. Suppliers are major pharmaceutical firms, and they also sell to retail pharmacies and through other channels, so the impact on them would be less disastrous than the impact on end users, who are typically patients in "skilled nursing facilities." The facilities would face higher costs that they would then have to pass on to their customers. Medicare Part D plans would in particular suffer, as they would need to buy from the combined entity, which would be the only one in the industry with national scope. There are structural issues within this industry -- in particular with respect to consumers using Part D Medicare plans, that prevent them from acquiring their drugs from sources outside of the long-term care pharmacy industry. Omnicare is already the dominant firm in this industry and has been accused of abusive practices. They use their size to bargain better deals from their suppliers but do not pass those savings along to consumers.

Part 2) There is no rational argument under existing trade laws for the merger. The combined firm would be more of a monopoly than an oligopoly, and the market would be subject to considerable abuse from Omnicare if this merger goes….....