set prices that enable it to capture a disproportionate share of the net

Set prices that enable it to capture a

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set prices that enable it to capture a disproportionate share of the net revenue accruing to the network, to the disadvantage of weaker firms and their employees. Primary or lead firms may not be the only firms in a network powerful enough to extract rents. An interesting example of the power exercised by contractor firms comes from the pharmaceuti- cal industry. Mylan acquired the company that produces the lifesaving EpiPen in 2007 and has since increased its price 500 percent to $600 (Thomas 2016). Mylan’s CEO described the supply chain that is involved in getting the EpiPen to patients. She pointed out that of the $600 price, only $274 comes to Mylan (Johnson 2016). Two of the companies—Express Scripts and CVS Health—handle prescription benefits for 75 percent of the market and use their market power to capture a substantial share of the monopoly rents from drug producers (Mitchell 2016: 17). Pharmacy benefit managers derive their power vis-à-vis the drug manufacturers from their ability to choose the drug makers whose products will be stocked by hospital pharmacies and considered “in the formulary” when purchased by insured patients (Livingston 2016). 4.2. Forms of networked production The archetypal image of firm-to-firm contracting is the linear supply chain. This type of produc- tion network is common in manufacturing industries where, beginning in the 1970s and 1980s, deregulation, the focus on maximizing shareholder value, and corporate policies led to the rise of supply chains. Following the emphasis on core competencies, large vertically integrated manu- facturers began selling off assets and outsourcing work. Now, they function as the lead firm in a supply chain while production activities are outsourced to multiple tiers of suppliers (Helper and Kreuger 2016). Despite evidence that collaborative relationships improve the competitiveness of the supply chain’s products, relationships of lead firms to third- and fourth-tier suppliers are generally based on cost considerations (Whitford 2006) and are designed to guarantee that the lead firm and major 2 For example, Jeanna Smialek (2015) quotes Fatih Guvenah, one of the researchers who documented the increasing variance in earnings between firms, as attributing this to the rise of “super firms”—businesses in which skilled workers with higher productivity are concentrated.
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522 Review of Radical Political Economics 49(4) contractors capture most of the profits and rents, and maximize shareholder value. Too often, this leads to a “race to the bottom” instead of a more collaborative structure (Helper and Kreuger 2016). Competition for a place in supply chains is so intense that these firms frequently experience bankruptcy or are shut down for violating labor laws or health and safety regulations. Both innova- tion that would benefit the economy and the pay of workers are depressed in these weaker firms.
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  • Three '17
  • Test, Eileen Appelbaum, Radical Political Economics

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