This Is The Homework 7 The Following Is A Case Study Using A

This Is The Homework7 The Following Is A Case Study Using A Recent Ev

This is the homework 7. The following is a case study using a recent event: CVS versus Walgreens: An interesting recent case involves two pharmacists CVS and Walgreens. 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 early June 2010, Walgreens announced that it would “no longer participate in new and renewed benefit plans from its rivals (CVS) drug benefits unit” (CNN Money, June 7 2010). The main grievance of Walgreens was CVS Caremark’s Maintenance Choice Plan which started requiring patients that have chronic medical conditions to fill their prescriptions 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 a 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.

Paper For Above instruction

Comment 1: The CVS-Walgreens scenario exemplifies the Prisoners Dilemma, where both companies faced a strategic choice to compete aggressively or cooperate for mutual benefit. In this case, Walgreens' decision to cease participating in CVS's benefit plans was driven by a desire to weaken CVS’s market position and attract customers to its own stores. Conversely, CVS responded by removing Walgreens from its benefit plans, aiming to protect its market share. Both companies initially acted in their own self-interest, risking substantial financial losses and diminished consumer loyalty, which is characteristic of the dilemma. Interestingly, their subsequent decision to settle and reach an agreement suggests a recognition that cooperation, rather than continued competition, was more beneficial in the long term. This reflects the classic tension between individual rationality and collective well-being in game theory, illustrating how firms might pursue short-term gains but ultimately find value in collaboration to restore stability and improve market perception. The case underscores the importance of strategic decision-making and the potential benefits of cooperation even amidst fierce competition.

Comment 2: The CVS versus Walgreens case can be viewed through the lens of the Prisoners Dilemma as an example of strategic interdependence, where each firm's optimal decision depends on the anticipated actions of the other. Both companies’ initial moves to restrict services and exclude each other from benefit plans were aggressive tactics designed to weaken the competitor’s position, but these actions ultimately led to a decline in shareholder value for both, exemplifying mutual harm. The companies’ eventual compromise indicates a shift to a more cooperative approach, recognizing that continuous conflict could damage their long-term profitability more than strategic cooperation. This scenario highlights how game-theoretic principles apply in real-world business environments, where competitive strategies must be balanced with the possibility of mutual gains through collaboration. The resolution also illustrates the importance of strategic patience and the willingness to negotiate, as both firms realized that their collective interests aligned better than ongoing conflict. Ultimately, this case demonstrates how firms may initially engage in a Prisoners Dilemma but learn to cooperate for mutual gain, reflecting the dynamic nature of strategic decision-making in competitive markets.

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