Oligopolies_and_Mergers

Oligopolies and Mergers According to McConnell-Brue, “an oligopoly is a market dominated by a few large producers of a homogeneous or differentiated product. Because of their “fewness”, oligopolists have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions” (McConnell-Brue, 2008). The term refers to a circumstance of a having few sellers for a product or service. This paper will refer to the service of dialysis. McConnell and Brue have explained that some oligopolies have emerged mainly through the growth of the dominant firms in a given industry. But for other industries the route to oligopoly has been through mergers (McConnell-Brue, 2008). Speaking of mergers, let’s examine the dialysis industry. DaVita is the owner of the second largest kidney dialysis chain in the United States (Hannaford, 2007). According to the company website, DaVita provides dialysis services for those diagnosed with chronic kidney failure. The company has over 1,500 outpatient dialysis facilities and acute units in over 700 hospitals. They serve approximately 115,000 patients with locations in 43 states and the District of Columbia (Davita, 2004-2010). In late 2004, DaVita announced its intention to purchase Gambro’s United States business valued at $3 billion (Pierce, 2005). Gambro is a global medical technology company and a leader in developing, manufacturing and supplying products, therapies and services for In-center Care and Self Care Hemodialysis, Peritoneal Dialysis, Renal Intensive Care and Hepatic Care. Gambro Healthcare, Inc. operates more than 550 dialysis clinics nationwide in 38 states serving more than 43,000 patients (Gambro, 2009). Gambro’s United States division is the 3rd largest dialysis provider. The merging of DaVita and Gambro provided DaVita with approximately 100,000 patients at over 1,000 centers (Pierce, 2005). The mergence of the two nation’s largest dialysis companies allowed the company to maintain the competitiveness necessary to protect its clients and remain close behind its #1 competitor- Germany-based Fresenius Medical Care AG (Hannaford, 2007). The merging of both these companies gives DaVita greater control over the market supply and the price of its service as well as cut-off one competitor. Doing so has perhaps increased their market share and allowed the company to achieve a scale of higher success. References Davita (2004-2010). DaVita-About Us. Retrieved on March 19, 2010 from company website http://www.davita.com/about/ Gambro (2009). Gambro-About Gambro. Retrieved on March 19, 2010 from company website http://www.gambro.com/int/About-Gambro/ Hannaford, S. (2007). Oligopoly Watch: Medical Equipment and Services – New Deal. Retrieved on March 19, 2010 from http://www.oligopolywatch.com/2004/12/09.html McConnel-Brue (2008). Economics: Principles, Problems, and Policies, 17th ed.: Oligopoly-Mergers. Retrieved on March 19, 2010 from http://ecampus.phoenix.edu Pierce, A. (2005). Cox Announces Antitrust Settlement in DaVita/Gambro Merger Investigation. Retrieved on March 19, 2010 from http://www.michigan.gov/ag/0,1607,7-164--127645--,00.html