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Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

Author

Listed:
  • Charles Gray
  • Abby Alpert
  • Neeraj Sood

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.

Suggested Citation

  • Charles Gray & Abby Alpert & Neeraj Sood, 2026. "Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market," American Economic Journal: Applied Economics, American Economic Association, vol. 18(1), pages 286-304, January.
    • Handle: RePEc:aea:aejapp:v:18:y:2026:i:1:p:286-304
    DOI: 10.1257/app.20240011
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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