The European Pharmaceutical Wholesale Industry: - phagro

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The European Pharmaceutical Wholesale Industry
8.2 Baligh-Richartz Effect
By analyzing vertical market structures Baligh and Richartz in the 1960s discovered
a law, proving that the use of intermediaries is efficient even if they induce
higher cost than a direct contact between manufacturers and retailers would
(GÜMBEL 1985).
In an economy with m producers, n consumers and no intermediaries, the number
of contacts is m⋅ n . Supposing that no matter how many producers and cus-
tomers are in the market, costs of contact are constant and equal 1. Total cost of
contact therefore is = m⋅
n .
C T
When introducing one intermediary in the distribution chain the number of transactions
and costs are reduced to CT = m + n . Therefore, costs are reduced by
m ⋅ n − m + n .
( ) ( )
Potential savings from the existence of intermediaries is growing dramatically with
the number of producers and customers because of the multiplicative effects of
direct distribution. Suggesting perfect competition, the benefits of introducing intermediaries
are reduced with the installation of further middle-man until
m ⋅ n = a⋅(
m+
n)
with a representing the number of traders. Therefore, with
m⋅n
a = companies in the market as much costs occur as if the goods were
m+
n
traded directly.
8.3 NACE-Classification
For the comparison of the performance of the pharmaceutical wholesale industry
with other wholesale sectors, NACE-classifications used by EUROSTAT were applied.
In total, 25 wholesale industries were used for the calculations, namely the
industries described by the classification numbers g512 to g5157. The g518-group
was not considered, due to a lack complete of data. In addition, classes summarizing
wholesalers which are not part of other groups (g5138, g5147 and g5156)
were not considered in the calculations. Group number g5146, which is related to
pharmaceutical wholesaling, also contains data on wholesale of medicinal products.
To circumscribe the two wholesale industries, data obtained from the GIRP
data-file and the inquiry was applied.
IPF Institute for Pharmaeconomic Research