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Oligopsony, Information Technology, and Systems Integration: The Case of the Healthcare Supply Industry

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Abstract:

This article examines the importance of oligopsony power in stimulating the diffusion of cost saving information technology throughout the healthcare supply chain. We present evidence to support the hypothesis that the optimal structure of the distribution stage of healthcare supply industry is (from the standpoint of cost minimization and reliability) highly concentrated. The hypothesis is predicated on two factors: (1) host-integrated electronic data interchange (EDI) is subject to substantial economies of scale; and (2) the oligopsony power possessed by giant distributors can be leveraged to force upstream suppliers into compliance with technical standards for EDI and automated data capture.

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