The View from the Shop—Antitrust and the Decline of America’s Independent Businesses

Date01 December 2016
Published date01 December 2016
ABX676139 498..516 Article
The Antitrust Bulletin
2016, Vol. 61(4) 498-516
The View from the Shop—
ª The Author(s) 2016
Reprints and permission:
Antitrust and the Decline of
DOI: 10.1177/0003603X16676139
America’s Independent Businesses
Stacy Mitchell*
Small businesses have declined sharply in both numbers and market share across many sectors of the
economy. There is evidence that this decline is owed in part to anticompetitive behavior by dominant
firms, which have used their market power to disadvantage smaller competitors and exclude new
entrants. These abuses have gone unchecked because of changes in the ideological framework guiding
antitrust enforcement. About thirty-five years ago, policy makers came to view maximizing efficiency,
rather than maintaining fair and open markets for all competitors, as the paramount goal of antitrust.
There are at least three reasons to bring a commitment to small businesses and fair markets back into
antitrust policy: small businesses deliver distinct consumer benefits, contribute to a more equitable
distribution of income and opportunity, and safeguard democracy.
small business, concentration, entrepreneurship, platforms, public policy, banking, pharmacy, retail,
innovation, efficiency, political economy, democracy
I. A Tale of Pharmacy Competition: How One State Is Not Like
the Others
Nathan Schlecht knows almost everyone who comes through the doors of his pharmacy in Forman,
North Dakota. He has been the pharmacist serving this remote community since 1998, when he and
his wife bought Forman Drug from the town’s retiring pharmacist. Forman is a tiny settlement, with
just 509 residents, situated in North Dakota’s sparsely populated southeast corner. Aside from the
rural health clinic that operates half-days, the itinerant optometrist, and the dentist who rents space at
the back of Forman Drug one day a week, Schlecht is the town’s only health care provider. He is the
person on call when the local nursing home has questions about medications. He gives presentations
on health issues at the local school and city hall. He does in-depth consultations with patients to talk
through treatment approaches for chronic diseases like diabetes. A few years after taking over
Forman Drug, he opened a telepharmacy ten miles up the road in Gwinner, and he makes the drive
*Institute for Local Self-Reliance (ILSR), Washington, D.C., USA
Corresponding Author:
Stacy Mitchell, Institute for Local Self-Reliance (ILSR), 1710 Connecticut Avenue, NW, 4th Floor, Washington, D.C. 20009, USA.

once or twice a day to deliver prescriptions. ‘‘A lot of my decisions are based on what is needed in
my community,’’ says Schlecht.1
Independent, locally owned pharmacies like Forman Drug have become rare in much of the
country, as drugstore chains, big-box retailers, and mail-order providers increasingly dominate the
sector.2 But North Dakota is a remarkable exception to this trend. In 1963, the state adopted a law
that says that a drugstore may operate in the state only if it is owned by a pharmacist.3 This is unique
in the United States, but many European countries have similar laws. The goal of the law is to ensure
that pharmacies are run by people whose first priority is providing health care in their communities,
not expanding the bottom line of a distant corporation. Today, North Dakota has more pharmacies
per capita than any other state, and there is not a single Walgreens or Walmart pharmacy among
them. Aside from a handful of grandfathered chain outlets, all of the state’s 177 pharmacies are
independent businesses.4
Given the conventional wisdom about the relative inefficiency of small business, one might assume
that North Dakota’s law has led to higher prescription prices. But the state has among the lowest drug
prices in the country. Over the last five years, it has ranked thirteenth on average for lowest prescrip-
tion prices among the fifty states.5 Compared to neighboring South Dakota, where both drugstore
chains and big-box stores with pharmacies are common, North Dakota boasts lower prescription
prices, and prices there have also been growing much more slowly than in South Dakota.6
Residents of North Dakota are getting more value for their dollar, too. In national surveys of
customer satisfaction, independent pharmacies consistently outperform chains and mail-order provi-
ders. ‘‘Independents . . . earned readers’ top marks for speed and accuracy, courtesy and helpfulness,
and pharmacists’ knowledge,’’ noted Consumer Reports in a January 2014 story.7 Independent phar-
macies have shorter wait times and fewer out-of-stock drugs, the magazine found, and their patients
receive more one-on-one time with the pharmacist. ‘‘Customers at independents were much more
likely to have discussed prescriptions with their pharmacist,’’ the analysis noted.8 J.D. Power’s 2013
Pharmacy Study reached similar conclusions.9
North Dakota residents also benefit from an unparalleled level of access and competition. The state
has more pharmacies per capita than any other state—30% more than the national average—and they
are remarkably prevalent even in the most remote regions.10 North Dakota’s rural census tracts are
2. Walgreens and CVS together control between 50% and 75% of the drugstore market in each of the country’s fourteen largest
metropolitan areas. Corey Stern, CVS and Walgreens Are Completely Dominating the U.S. Drugstore Industry, BUS. INSIDER
(July 29, 2015),
3. N.D. CENT. CODE § 43-15-32 (2015). Thirteen countries in the European Union regulate pharmacy ownership. CRISTIANA
5. Based on an analysis of data from Symphony Health’s PHAST Prescription Monthly, a leading source of prescription data,
by the Institute for Local Self-Reliance. For more details, see LAVECCHIA & MITCHELL, NORTH DAKOTA’S PHARMACY
OWNERSHIP LAW, supra note 1.
7. Finding the Right Pharmacy: Our Survey Offers 10 Reasons Why You May Want to Switch Drugstores, CONSUMER REP., Jan.
8. Id.
9. The Customer Satisfaction Gap Continues to Widen Between Brick and Mortar and Mail-Order Pharmacies, J.D. POWER
REP., Sept. 30, 2013.
10. Based on an analysis of pharmacy data from the North Dakota Board of Pharmacy; South Dakota Board of Pharmacy; NAT’L
ASS’N OF CHAIN DRUG STORES, FACT BOOK 2013–2014; and the U.S. Economic Census by the Institute for Local Self-
Reliance. For more details, see LAVECCHIA & MITCHELL, NORTH DAKOTA’S PHARMACY OWNERSHIP LAW, supra note 1.

The Antitrust Bulletin 61(4)
51% more likely to have a pharmacy than those in South Dakota, which has a similar population
distribution.11 North Dakota’s urban residents, meanwhile, enjoy more competition. In North Dakota’s
two biggest cities, Fargo and Bismarck, there are 1.8 competing pharmacy firms per 10,000 people,
compared to just 1.3 in Sioux Falls and Rapid City, the largest cities in South Dakota.12
II. Explaining the North Dakota Anomaly
How is it that independent pharmacies are so competitive in North Dakota and yet have been rapidly
losing ground everywhere else? If independents can beat the chains on price, service, and access in
North Dakota, then they should be able to do that in Nebraska and New York, too. The likely answer to
this puzzle has to do with pharmacy benefit management companies, or PBMs, and the ways they use
their market power to exclude local pharmacies from competing. Although largely invisible to con-
sumers, PBMs play a pivotal role in the health care system by managing prescription benefits for
insurers. Just two PBMs—Express Scripts and CVS Health—control 75% of the market, handling
prescription benefits for more than 180 million Americans.13
Both of these companies have a stake in retail pharmacy. They each own mail-order pharmacy
services, and CVS Health owns the nation’s second largest drugstore chain. Not surprisingly, PBMs
commonly provide incentives such as lower copays to steer patients to their own pharmacies, while
offering independent drugstores take-it-or-leave-it contracts that force them to choose between losing
money on many of the prescriptions they fill or being left out of an insurer’s network altogether.14 As
Brian Caswell, owner of Wolkar Drug in Baxter Springs, Kansas, told CNN Money: ‘‘The contracts
have become egregious, with 15 to 20 pages of legal documents and red tape that we can’t understand.
As the PBM industry has shrunk to a handful of companies, they take more and more and give us less
and less.’’15
North Dakota’s pharmacists have to deal with PBMs too, but because they are the only pharmacies
in the state, they have the leverage to negotiate fairer terms. The state’s pharmacy ownership law has,
in effect, filled the vacuum left by the failure of antitrust policy to promote and maintain an open and
competitive market.
Although independent pharmacies are healthy and...

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