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.

Under the non$-$strategic view of bargaining, the PBM would earn a surplus of

million, while each drug company would earn a surplus of

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

million, while the merged drug company would earn a surplus of

million.

In Egypt, you calculate that the annual value created by one distributor is $$420$ million per year, but would be $$560$ million if two distributors carried your product line.

Assuming a nonstrategic view of bargaining, you would expect to capture

million of this deal. $($Hint: The two distributors are independent of each other; therefore, you conduct separate negotiations with each.$)$

Argentina also has two distributors that add value equivalent to the value added by the two distributors in Egypt, but both are run by the government.

Assuming a nonstrategic view of bargaining, you would expect to capture

million of this deal.

In Argentina, if you do not reach an agreement with the government distributors, you can set up a less efficient Internet$-$based distribution system that would generate $$140$ million in value to you.

Assuming a nonstrategic view of bargaining, you would expect to capture

million of this deal.