Group Purchasing Organizations, Monopsony, and Antitrust Policy

Group purchasing organizations (GPOs) consolidate the purchasing power of their members and negotiate contracts with input suppliers on their behalf. GPOs have received attention from the Department of Justice and Federal Trade Commission because of concerns over monopsony power and standardization of hospital production costs. GPOs have been criticized in the literature for their contracting practices, which may appear to be exclusionary, and their funding mechanism, which may lead to incentive incompatibility. We analyze these competitive concerns in turn. We find GPOs to be procompetitive and suggest an antitrust policy that preserves the benefits of GPO operations while protecting consumers from any competitive shortcomings.