Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

Charles Gray, Abby Alpert and Neeraj Sood

American Economic Journal: Applied Economics, 2026, vol. 18, issue 1, 286-304

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.

JEL-codes: G22 G34 I13 I18 L22 L65 (search for similar items in EconPapers)
Date: 2026
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Working Paper: Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market (2023)
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DOI: 10.1257/app.20240011

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