Introduction: The study of the competitive environment in the pharmaceutical market is an element of the analysis of the drug supply system. The purpose of the study is to analyze the dynamics of concentration levels in the wholesale segment of the regional pharmaceutical market.

Materials and methods: Data on market shares of key players were collected and summarized based on the executed contracts (461 contracts in total) for the supply of pharmaceutical products in the model region. For the competitive analysis of pharmaceutical distributors, the Herfindahl-Hirschman Index (HHI_n) calculation method was used. We also used the method of constructing the SV matrix, which has the form of a graph consisting of four quadrants divided on the abscissa scale by the obtained values of market concentration ratios (CRSV) and on the ordinate scale by the values of Hall-Teidman indices (HTSV).

Results: Market concentration indicators in the wholesale segment of the regional pharmaceutical market indicate the formation of oligopoly. The constructed SV matrix demonstrated the dynamics of market concentration levels corresponding to the changing economic situation. Based on the results of the analysis, proposals to improve the competitiveness of regional pharmaceutical distributors were formed.

Conclusion: The study of the dynamics of market concentration indicators allowed to analyze their state, establish the vectors of their drift, and propose measures to optimize the wholesale supply of pharmaceutical goods.

market concentration, pharmaceutical distributor, pharmaceutical market, SV matrix, wholesale segment

Scientific analysis of the development dynamics of various commodity markets is essential for understanding the mechanisms that determine the prospects for market relations in constantly changing economic, political, social, demographic, and other conditions (Karachev 2016; Gerasimova and Petrusevich 2023).

One indicator characterizing the state of the market is the concentration of its subjects that form the competitive environment. Market concentration is understood as an indicator of the prevalence in a competitive environment of a group of large entities (players) that impede the development of free economic activity, the formation of a single economic space, the movement of goods, the protection of competition, and the creation of conditions for the effective functioning of commodity markets (Markov and Yakimova 2022; Markov 2023).

Attention and scientific interests in the analysis and monitoring of the competitive environment are confirmed by the presence of a large number of publications by Russian and foreign researchers, both in the theoretical field (Kuznetsov et al. 2019; Kusharov and Kodirova 2020; Garmashova 2023) and in various areas of practical activity, such as transport (Shkurenko and Melnik 2020); industrial production (Iver et al. 2017; Alilova 2022; Ergashev et al. 2022); entrepreneurship (Zyus’kin 2019; Emelyanov 2023); sales of weapons and military equipment (Shaburova 2020) and others.

The concentration level has a significant impact on the market activity of players. At the same time, the theory of economic dominance confirms the growing interdependence of players from an increase in the level of their concentration in the market, which ultimately determines the structure of the product market as well as the behavior and results of the economic activities of the main players (Bekarev and Bekareva 2015; Grigorieva 2021).

The pharmaceutical market is a type of product market whose special characteristics are determined by the main product—medicines that combine two qualities. On the one hand, medicines are a product of economic activity, and, therefore, they must generate income for all structures of the distribution network: manufacturing organizations, distribution organizations, and pharmacy organizations. All of these structures must be able to recover costs as well as make a profit to meet the needs of their employees and further develop their economic activities. On the other hand, medicines are the most important socially significant product that has a significant impact on the quality of medical care, disease prevention, and strengthening and maintaining the health of citizens. This dualism often gives rise to contradictions between the desire of the pharmaceutical business community to obtain maximum profits and the solvency of the population and healthcare organizations to maintain a socially necessary level of drug consumption (Mokhov 2004; Vorontsova 2016; Lin et al. 2017).

In such conditions, the results of studying the dynamics of changes in the competitive environment in the pharmaceutical market, including in its wholesale segment, are of scientific and practical interest. They can provide valuable information for analyzing the current state and forecasting the development of competition, which affects the economic accessibility of medicines for the population.

The purpose of the study was to analyze the dynamics of concentration levels in the wholesale segment of the regional pharmaceutical market and determine the vectors of its development by constructing the SV matrix.

The authors used a wholesale segment of the regional pharmaceutical market of a constituent entity of the Russian Federation, the Karachay-Cherkessia Republic (KCR), as a model. The basis for this choice was a comprehensive study of the problems of drug provision accessibility and quality for the population in the North Caucasus region of Russia, performed on an initiative basis. The study and analysis of the competitive environment of the wholesale segment in the regional pharmaceutical market was performed according to recommended methods in the following sequence (Linda 1976; Gurnakova 2011; Izmailov 2015):

1. determination of the time period for conducting the study;
2. determination of the area of responsibility (geographical boundaries) of the market;
3. establishing product boundaries of the market—the main groups of pharmaceutical products that shape supply and demand;
4. identification of the main players—large Russian and regional pharmaceutical distributors;
5. collection and synthesis of data on the shares of the main players in the market—determined by copying data from completed contracts for the supply of drugs, medical devices, and parapharmaceutical products of the pharmaceutical range in the KCR, for which we used data from the PharmAnalyst website on the supply of pharmaceutical products to healthcare organizations [https://marketmed.ru/]. Data from 461 contracts for the supply of pharmaceutical goods were identified and summarized for the period studied;
6. determination of the total volume of the market commodity resource—performed using generalized statistical data on the supply of pharmaceutical products to KCR healthcare organizations;
7. determination of concentration indicators was performed by calculating the Herfindahl-Hirschman index (HHI _n) using formula (1) [https://vakpro.ru/indexes-herfindalya-i-hirshmana-herfindahl-hirschman-index-hhi]:

$HH{I}_n=M{S}_1^2+M{S}_2^2+M{S}_n^2$ (1)

where: $M{S}_n^2$– square of the market share (Market Share) n - new large wholesale supplier (in %) present in the regional pharmaceutical market;

8. construction of the SV matrix [https://svmatrix.online/ru/Matrix-SV/]. The SV matrix has the form of a graph constructed in the studied period and coordinate system, where the values of the market concentration coefficient (CRSV) are plotted along the abscissa axis, which is determined by summing the shares of the dominant pharmaceutical distributors in the regional market according to formula (2):

$CRSV=\sum _{i=1}^{n}M{S}_i$ (2)

where: MS is the market share of the nth large wholesale supplier (in %) present in the regional pharmaceutical market.

The ordinate axis shows the Hall-Tideman index values (HTSV), which are determined by comparing the ranks and market shares of the main distributors operating in the market according to formula (3):

$HTSV=\frac{1}{2}\sum R_{n}M{S}_n-1$ (3)

where: R_nMS_n is the product of rank R (in numerical terms) per market share MS (in decimal value) of the nth large wholesale supplier.

The resulting matrix (in the form of a graph) was distributed into 4 quadrants:

• upper right quadrant G (Gazprom, after the name of the alpha company): the dominant core accounts for a large share of the market, while the companies within the core are highly differentiated. This means that there are super companies in the market that occupy a key position in the market and help create barriers to the growth of smaller companies. The boundaries of this quadrant are set by the values of CRSV > 65% and HTSV > 0.1;
• lower right quadrant B4 (The Big Four): the dominant core occupies a large share with low differentiation, which indicates the presence of comparable large alpha companies in the market. The goal of players in such a market is to prevent new players from joining the dominant group (CRSV > 65%, HTSV < 0.1);
• lower left to the quadrant RO (Red Ocean): the sum of the shares of the dominant companies is relatively low with low differentiation, which indicates the presence in the market of alpha companies forced to compete with each other and with betas and gammas (30% < CRSV < 65%, HTSV < 0.1);
• upper left quadrant I (IKEA, after the name of the European manufacturing and retail trading group): the total share of the dominant companies is low, and they are very different from each other. This situation is typical for industries where there is a low barrier to entry for new players, but there are large players that stand out strongly (30% < CRSV < 65%, HTSV > 0.1) (Shchelokova and Vertogradov 2021; Vertogradov and Shchelokova 2022; Zabegaeva and Volodin 2023).

When presented graphically, the boundary of the quadrants of the SV matrix on the abscissa scale is the CRSV indicator—the vertical boundary divides the matrix field at the value of 65%, and on the ordinate scale is the HTSV indicator—the horizontal boundary passes at the value of 0.1. The graphically expressed movement of the total indicators of the presence and degree of dominance of the main pharmaceutical distributors in the regional market, constituting the core of the wholesale segment, reflects, firstly, their role and place in the market, and secondly, the state of the market itself, its dynamics, and directions of drift in the changing socio-economic conditions, which is important for predicting development trends and developing proposals to improve competitiveness for all other entities in the wholesale segment operating in the market.

To determine the concentration levels of the wholesale segment of the regional pharmaceutical market in the study period, the obtained values of the HHI_n indices were compared with established parameters (Garant 2006) [https://base.garant.ru/12148673/]:

• high—at 2000 < HHI < 10000;
• moderate—at 1000 < HH I < 2000;
• low—at HHI < 1000.

At the final stage of the study, the stratification of the main players in the wholesale segment of the regional pharmaceutical market of the KCR was carried out. For this purpose, we used a methodological approach based on the theory of economic modeling (Vertogradov 2020), according to which, in commodity markets there is an objective process of stratification (stratification) of economic actors depending on their economic opportunities, social, regulatory, and other conditions. Stratification is carried out according to three levels: Alpha, Beta, and Gamma. Market subjects of higher levels prevent other players from entering selected market segments, generating “imperfect” competition (Kuznetsova and Filyugina 2021; Laguntsov 2022; Blokhin 2023).

Alpha players include the most powerful companies with economic authority and the ability to either influence existing or establish new market rules, up to and including the promotion of favorable changes in regulatory legal documents and the formation of affiliated commercial structures that covertly pursue the interests and policies of their “suzerains.” As a rule, they have access to financial and commodity resources.

Beta players are represented by companies that have the ability to produce goods on an industrial scale. These are usually leading industry companies or industrial groups. With large commodity resources and assets under management, these players are able to control significant shares of commodity markets.

Gamma players unite all other representatives of the business community who operate in the free-market space left for them, ensuring, on the one hand, the maintenance of commodity-money relations with alpha and beta companies and, on the other hand, the maintenance and satisfaction of commodity supply and demand in the market (Blokhin 2015; Govorova et al. 2021).

Following the established sequence of assessing the concentration level of the wholesale segment in the regional pharmaceutical market, at the first work stage, the study period was established from January 2018 to June 2023. The specified time period included the pre-pandemic stage (2018), as well as the stages of the beginning (2019), height (2020–2021), and attenuation of the COVID-19 pandemic (2022–2023), which made it possible to obtain new data on the response of the regional pharmaceutical market to the difficult conditions of the current situation.

When determining the geographical boundary, we proceeded from the position that the area of responsibility of the model regional pharmaceutical market is the territory of the KRC.

Having analyzed the range of pharmaceutical products in circulation on the territory of the Karachay-Cherkessia Republic in order to establish the product boundaries of the market, the authors decided to classify medicines, medical devices, and parapharmaceuticals in the pharmacy range as the main groups of goods that form demand and supply.

To classify suppliers as the largest Russian and regional pharmaceutical distributors, we used a relative indicator of the total volume exceeding 5% of the total value of the products supplied. These distributors included seven large pharmaceutical companies performing distribution activities in the Karachay-Cherkessia Republic. These included pharmaceutical distributors at the federal level: the companies Protek, Katren, and R-Pharm; regional distributors: Organika Company, Pulse Krasnodar, and Magnit Pharma; as well as the local distributor Medsnab KCR. Hereinafter, in order to avoid undisclosed potential conflicts of interest, these companies will be referred to as: Protek-FFD-1 (federal pharmaceutical distributor No. 1), Katren-FFD-2, R-Pharm-FFD-3, Company Organika - RFD-1 (regional pharmaceutical distributor No. 1), Pulse Krasnodar-RFD-2, Magnit Pharma-RFD-3, Medsnab KCR-MFD (local pharmaceutical distributor).

The total volume of the wholesale segment of the regional market in value terms was determined using generalized statistical data on the supply of pharmaceutical products to healthcare organizations in the Karachay-Cherkessia Republic for each year under study. Considering these data, the shares of large suppliers (MS) in the total market volume and their rating (R), which was determined by comparing the shares, were established. The data is shown in Table 1.

Further, the Herfindahl-Hirschman indices (HHI_n) were calculated using formula (1). Index calculation example: Herfindahl-Hirschman (HHI_n) according to formula (1):

HHI ₂₀₁₈ = 16.0 ² +11.0 ² +13.4 ² +11.4 ² +8.3 ² +9.5 ² = 845.66

SV matrix was formed as a wholesale segment of the pharmaceutical market of the Karachay-Cherkessia Republic. Using formula (2), we calculated the values of market concentration coefficients (CRSV) based on the data MS presented in Table 1 for each year of the period under study. Example of calculating the CRSV coefficient as of 2018:

CRSV ₂₀₁₈ = 16.0+11.0+13.4+11.4+8.3+9.5 = 69.6

Then, according to formula (3) and the MS and R data presented in Table 1, the values of the Hall-Tideman indices were determined (HTSV), the indicators of which characterize market concentration. An example of calculating the HTSV index as of 2018:

$HTS{V}_{2018}=\frac{1}{2\times (1\times 0,16+2\times 0,134+3\times 0,114+4\times 0,11+5\times 0,095+6\times 0,083)-1}=0.297$

Summary data required to construct the SV matrix, namely the number of major players in the wholesale segment of the regional pharmaceutical market, calculated values of market concentration coefficients (CRSV) and Hall-Tideman indices (HTSV), as well as the occupied quadrant, are shown in Table 2.

In graphical form, the SV matrix, consisting of four quadrants, is presented in Fig. 1.

Figure 1. 

Matrix SV Wholesale segment of the pharmaceutical market of the Karachay-Cherkessia Republic. Note: The captions for the market concentration indicators for each year studied indicate the number of major pharmaceutical distributors.

The results of stratification of the main players of the wholesale segment of the regional pharmaceutical market of KCR as of 01.01.2024 are presented in Fig. 2.

Figure 2. 

Stratification of the main pharmaceutical distributors of the wholesale segment in the regional pharmaceutical market.

Federal pharmaceutical distributors FFD-2 and FFD-1 firmly hold the position of alpha players. It should be noted that the federal distributor of FFD-3 has shown no interest in returning to the regional pharmaceutical market following the end of the COVID-19 pandemic. Regional pharmaceutical distributors RFD-2 and RFD-1 made up the betta player group. Local distributor MFD and regional distributor RFD-3 made up the gamma player team. The regional distributor RFD-3 became a representative of gamma players due to the fact that it entered the pharmaceutical market of KCR only in 2023.

Analysis of the results of calculating Herfindahl-Hirschman (HHI_n) annual indices (Table 1) indicates that in 2018, preceding the COVID-19 pandemic, the wholesale segment of the regional pharmaceutical market was at a low concentration level (HHI₂₀₁₈ = 845.66), which contributed to the development of a normal competitive environment. During 2019–2020 there was a transition of the market to a moderate concentration level (HHI₂₀₁₉ = 1003.17; HHI₂₀₂₀ = 1874.21), which is associated with the beginning and further height of the pandemic, which led to a blackout period in all areas of economic activity (Loginova 2021). As a result, almost the entire medium-sized pharmaceutical business was forced to reduce or cease operations. During this period, the main players were large distributors who managed to adapt to the difficult economic situation. After the end of the pandemic and the lifting of restrictions, the wholesale segment showed a “revival” and again moved to a low concentration level (HHI₂₀₂₁ = 812.34), but with a tendency to return to a moderate level (HHI₂₀₂₂ = 929.71). The results of the first half of 2023 confirm the return of the wholesale segment to a moderate concentration level in figures exceeding 2019 (HHI₂₀₂₃ = 1029.26). This situation indicates the formation of an oligopoly, which is a market condition when several large players occupy leading positions. This leads to a weakening of the competitive qualities of other players and an increase in tension, which has a negative impact on free market relations.

Currently, the world is experiencing an increase in the impact on economic relations of intensifying competition between economic entities for financial and technological dominance and increasing confrontation between business structures and the state, which can lead to risks associated with the predominance of business interests over public ones (Gursky 2021). The pharmaceutical market, which has an important social component, is also subject to such risks. However, in our country there are processes of increasing the influence of the social component on the activities of the pharmaceutical business (Tretyakova and Lisova 2022).

According to the theory of economic dominance, in commodity markets there is an objective process of stratification of economic entities depending on their economic capabilities, social, regulatory, and other conditions. Stratification is performed at three levels: alpha, beta, and gamma. Market entities at higher levels prevent other players from entering selected market segments, giving rise to “imperfect” competition (Kuznetsova and Filyugina 2021; Laguntsov 2022; Blokhin 2023).

The SV matrix we constructed (Fig. 1) made it possible to trace the drift of market concentration in the wholesale segment of the regional pharmaceutical market over the five years under study. Thus, in 2018, preceding the COVID-19 pandemic, the wholesale segment was in quadrant G, which indicates the unconditional dominance of six large suppliers in the market, of which one supplier, the MFD company, was not a leader in terms of pharmaceutical goods supply to the Karachay-Cherkessia Republic, but with a market share of 9.5% (Table 1), it was essentially one of the largest suppliers. During 2019–2021 (the beginning, height, and decline of the pandemic), market concentration in the wholesale segment moved to quadrant I, which was accompanied by a decrease in the number of largest suppliers, first to three, and in 2020 to two companies. This situation, from the perspective of the theory of economic dominance, contributed to the reduction of competitive barriers to entry into the market for other suppliers, but the pandemic blackout created significant obstacles to this process. The lifting of pandemic restrictions (2021) contributed to the revival of competition, which led to an increase in the number of main players to four. However, the specific characteristics of the socio-demographic situation in the Karachay-Cherkessia Republic and the associated features of the regional pharmaceutical market (a relatively small volume of consumption of pharmaceutical products and, as a consequence, the absence of a network of local pharmaceutical distributors) in 2022 again returned the indicators of market concentration levels in the wholesale segment to the quadrant G, which led to the formation of a stable oligopoly in 2023, including six pharmaceutical distributors.

The stratification of the main wholesale suppliers presented in Fig. 2 confirms the actual dominance of large business representatives in the pharmaceutical goods market of the Karachay-Cherkessia Republic, but, at the same time, it provides the basis for the development of regional wholesalers due to the advantages associated with lower logistics costs and the ability to quickly respond to the changing needs of organizations in healthcare (Toluzakov 2021).

For a comparative assessment of the obtained dynamics of market concentration in the wholesale segment of the regional pharmaceutical market with similar indicators of pharmaceutical markets in Russia and the countries of the Eurasian Economic Union (EAEU), a patent search and subsequent content analysis of a number of scientific publications (Livanskii 2017; Toregozhina et al. 2019; Markov and Yakimova 2022; Evstratov et al. 2024) reflecting the problems of market competition was conducted. Of the above publications, only the publication (Markov and Yakimova 2022) fragmentarily analyzed the level of market concentration in the pharmaceutical market in Russia, with a fragmentary analysis in the wholesale segment. The publications (Livanskii 2017; Evstratov et al. 2024) reflected studies of market concentration in pharmacy retail, while the publication (Toregozhina et al. 2019) analyzed market concentration in the pharmaceutical industry. As a result of the analysis, it was found that the main trends in market concentration dynamics in the regional market correlate with similar processes in the retail sphere of the pharmaceutical market and industrial production. In the pharmaceutical industry as a whole, there is a tightening of competition and, as a consequence, the squeezing out or takeover of smaller competitors by large pharmaceutical companies and the formation of oligopolies that include not only pharmaceutical distributors but also pharmacy chains. For Russia and the EAEU countries, such an economic model is the most acceptable in the existing conditions, as it allows, due to its substantial economic sustainability, to solve the problems of providing medicines to the population by deploying branches and representative offices of large pharmaceutical associations across the vast territory of Russia and the EAEU countries, to manage logistics and diversify supply chains, taking into account regional socio-economic, climatogeographic, medical, and demographic characteristics of individual countries and territories, and to reduce the eco-efficiency of the supply chain.

Interesting processes of supranational regulation of the level of concentration of production and capital in the pharmaceutical industry are observed in the countries of the European Union (Kondrat’eva and Khromakov 2020). The analysis, based on the concept of perfect competition and the hypothesis of the inability of large markets to operate independently, showed that it is impossible to ensure high quality of goods and fair prices without the help of regulators. It is concluded that the supranational control of the pharmaceutical market will be strengthened.

In developing countries, small pharmaceutical companies are facing an acute challenge of digitalization and adoption of continuous management and production technologies, which will deepen competition in the industry (Mamedyarov 2020). Significant implications for the industry have resulted from the ‘Brexit’, which has led to a realignment of supply chains within the European Union since the beginning of 2021, reducing the competitiveness of the UK.

The strategic directions for further development of MFD, which is part of the group of gamma players and does not have a leading position in the regional pharmaceutical market, may include: expansion of economic ties with alpha and beta players as a business partner—an intermediary with pronounced logistical advantages; retention of the client base and its expansion due to an attractive financial policy; integration (up to merger) with other gamma players, ensuring an increase in market share and economic opportunities.

In our opinion, there are a number of conceptual directions to increase the competitiveness of the regional pharmaceutical business in the wholesale segment, namely for the MFD company. The essence of them is to increase functional complexity by increasing the variety of types, forms, and methods of economic activity (Evseeva and Ramenskaya 2020). These directions can be presented in the form of the following proposals:

• maintenance by the regional distributor of permanent monitoring of the structure and content of its own product portfolio;
• intensifying participation in state and regional programs for preferential drug provision;
• expansion of the affiliated pharmacy network to increase the volume of retail sales of pharmaceutical products and the provision of pharmaceutical services to the population;
• development of small-scale pharmaceutical production (manufacturing) of medicinal products;
• conducting an active advertising campaign for wholesale and retail consumers;
• introduction of mechanisms to attract and retain wholesale and retail consumers by providing social and economic preferences.

The study of the dynamics of market concentration indicators in the wholesale segment of the regional pharmaceutical market of the Karachay-Cherkessia Republic using the SV matrix made it possible to analyze the state and establish drift vectors of the market situation in the current socio-economic conditions, as well as propose a number of conceptual directions for optimizing activities in the field of wholesale supplies of pharmaceutical goods. The authors understand that the implementation of the presented proposals has significant economic (increased long-term capital investments, costs, and expenses) and administrative (licensing of certain types of pharmaceutical activities) barriers. However, given the current situation in the pharmaceutical market of the Karachay-Cherkessia Republic, the implementation of these proposals, in our opinion, can help increase the competitiveness of the MFD company.

This study had no outside funding.

The authors declare that there are no conflicts of interest.