Restricted Formulary Hospitals are big purchasers of pharmaceutical products and have to stock many different chemical entities. However, they increasingly do not stock all. Instead, they restrict their formularies to many of the treatments in a therapeutic class but consciously exclude a few. How does this help them negotiate?

If they were to carry every drug in existence, every drug producer would know that their disagreement value was high. But because there is a chance that a specific drug will not be included in the formulary, every drug producer now faces a disagreement value of $0 . This improves the bargaining position of the hospital.