Merck's Acquisition of Medco and the FTC Challenge

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Merck's Acquisition of Medco and the FTC Challenge In 1998 Merck and Co. (Merck) faced a challenge from the FTC on the basis of anti-trust concerns, referring to their acquisition of Medco. However, this was a case where the firm was challenged several years after the acquisition took place. The FTC challenged Merck arguing that the acquisition of Medco, which had subsequently become Merck-Medco a subsidiary of Merck, could result in a lessening of competition that would be detrimental to the industry and the consumers. This was due to Medco being a pharmacy benefits manager (PBM) . The concern was that the acquisition could lead to increasing prices and a potential decrease in quality (FTC, 1998). When looking at the merger it may be argued that it there were a number of factors which would make it attractive Merck, but these were many of the same factors which may cause concern in terms of the way the merger would impact on competition and lead to the subsequent challenge. The merger/acquisition took place in 1993. At this time the PBM industry was relativity new. The PBM services can be seen as the 'middle men' in the way prescription goods are distributed and sold and served as an intermediary between the pharmaceutical manufacturers and the managed care suppliers (FTC, 1998). When Merck acquired Medco it was a strategy of vertical integration. When a firm acquires another related business it may undertake integration in one of two ways; horizontal or vertical

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