The following is a case study using a recent event: CVS versus Walgreen: an inte
ID: 2634190 • Letter: T
Question
The following is a case study using a recent event: CVS versus Walgreen: an interesting recent case involves two pharmacists CVS and Walgreen. Rather than a situation where the two indulge in a competitive battle against each other over advertising or a price war, they battle against each other on the services offered. In the early June 2010, Walgreens announced that it would " no longer participate in new and renewed benefit plan from its rivals (CVS) drug benefits unit" ( CNN money, June 7 2010). The main grievance of Walgreens was CVS Caremarks maintenance choice plan started requiring patients that have chronic medical conditions to fill their prescription at CVS pharmacies only rather than giving them the choice to fill it at Walgreens (or other pharmacies). As a result of this announcement both companies shares fell- CVS fell 8% and Walgreens fell 2.7%. As a response CVS in couple of days decided to drop Walgreens from its pharmacy benefits plan, which would force some of its benefits customers to pay a much larger amount to get their drugs from Walgreens. Leading to a potential loss of customers for Walgreens. As a result CVS shares fell 1.5% and Walgreens fell 3%. Eventually, about a week later the two pharmacies decided to end their war, coming to a compromise agreement the financial terms of which were not disclosed.
As a result both firms saw their stock values increase. Briefly comment on this example as an application of the prisoners dilemma game .
Explanation / Answer
Prisoner's dilemma game :
This is a situation in which two individuals or two companies or organizations settle upon a strategy in their own best interest that does not result in the ideal outcome. In simple words the approach taken by one enitity to protect itself at the expense of other entity is what is emphasized as prisoner's dilemma. In order to help oneself the other participant find themselves in a more worse condition than the priorly existed condition.
The given case amidst CVS and walgreen is a similar case where, in order to attract more customers they made certain annoucements which eventually resulted in the drop of their company share.
Some strategies that were followed by CVS as given in the case are:
1. CVS insisted their patients with chronic medical conditions to fill their prescription at CVS by not giving them the choice to choose the pharmacy which resulted in the drop of company share.
2. CVS decided to drop walgreen from its pharmacy benefits plan which resulted in further drop of company share value.
Having analysed that it was impossible for CVS to attract customers at the cost of removing Walgreens from its benefits plans, CVS rather decided to cooperate and get into a state of understanding with the company by signing a compromise agreement in financial terms.
This is the key point in decision making process. To decide whether to cheat and grab the market at the cost of other company or to cooperate with each other and participate in the fair competition has to be decided by the management. This is the concept of prisoner's dilemma and has been neatly executed by both CVS and Walgreen.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.