Park 1 Michelle Park Economics 191 Research Topic: Group Purchasing Organizations Hypothesis: Do the group purchasing organizations

in the health industry end up colluding and in effect share the rents? Motivation & Background: If in fact the price goes up, they are monopsonists and antitrust law does apply. The following are my questions of interest for my research topic on group purchasing organizations. Is group purchasing organization (GPO) a two-sided market, a market in which economies-of scale matter? There are two arguments about GPO: one argument is that it is a monopsony and other is that it is a monopoly. Is monopsony and monopoly contradicting forces in the real market? Are they contradictory arguments? Monopoly argument places GPOs under the scrutiny of antitrust laws. For example, in the case of a monopoly, suppliers collude and set price for highly abnormal profit. Currently, suppliers, not the buyers, pay the GPO 2% of their revenues. GPOs act like real estate agents who are deemed to represent the client, but still have an interest in the highly valued product that the supplier provides, from which the GPOs profit is derived. In the case of monopsony, the buyers have the purchasing power and can pressure price to be below the competitive level, actually hurting the suppliers welfare. Perhaps, there is an equilibrium point that maximizes both buyers and suppliers welfare in the bilateral monopoly analysis.

Park 2 The motivation for asking these questions are due to the antitrust issues that the GPO of health care industries currently face. The US antitrust law is a body of laws that prohibits anti-competitive behavior (monopoly) and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. Can monopoly behavior in antitrust market of GPO be actually socially efficient? Is competition always desirable (Ingo Fiedlers article) in the case of GPO? Perhaps, the view on monopoly needs to be changed when considering monopsony also as an issue that decreases the suppliers welfare. There needs to be a balance in the welfare of suppliers and buyers. Is monopsony also an issue of antitrust law? The issue that is likely to continue attracting antitrust or regulatory scrutiny is whether the current funding or compensation approach makes GPOs ineffective as purchasing agents and facilitates monopoly pricing by suppliers (Group Purchasing Organizations and Antitrust Law: Recent Developments). I have so far look at research papers that looked at the spending of buyers who are members of the GPO and those who are not. Buyers who are members of GPO experience reduction in costs and, thus, lower prices. However, from the suppliers side, antitrust cases have been filed because only certain suppliers are able to even become a part of GPO. Perhaps, GPO is not a two-sided market because bigger supplier pool does not necessary increase GPOs profits. Its may be one-sided in the sense that bigger pool of buyers are beneficial.