Competition in the German pharmacy market: an empirical analysis

Pharmaceutical products are an important component of expenditure on public health insurance in the Federal Republic of Germany. For years, German policy makers have regulated public pharmacies in order to limit the increase in costs. One reform has followed another, main objective being to increase competition in the pharmacy market. It is generally assumed that an increase in competition would reduce healthcare costs. However, there is a lack of empirical proof of a stronger orientation of German public pharmacies towards competition thus far.

This paper analyses the self-perceptions of owners of German public pharmacies and their orientation towards competition in the pharmacy markets. It is based on a cross-sectional survey (N = 289) and distinguishes between successful and less successful pharmacies, the location of the pharmacies (e.g. West German States and East German States) and the gender of the pharmacy owner. The data are analysed descriptively by survey items and employing bivariate and structural equation modelling.

The analysis reveals that the majority of owners of public pharmacies in Germany do not currently perceive very strong competitive pressure in the market. However, the innovativeness of the pharmacist is confirmed as most relevant for net revenue development and the profit margin. Some differences occur between regions, e.g. public pharmacies in West Germany have a significantly higher profit margin.

This study provides evidence that the German healthcare reforms aimed at increasing the competition between public pharmacies in Germany have not been completely successful. Many owners of public pharmacies disregard instruments of active customer-orientated management (such as customer loyalty or an offensive position and economies of scale), which could give them a competitive advantage. However, it is clear that those pharmacists who strive for systematic and innovative management and adopt an offensive and competitive stance are quite successful. Thus, pharmacists should change their attitude and develop a more professional business model.