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In this paper we explore the impact of electronic commerce on the industry structure and market power allocation of China’s pharmaceutical industry. Firstly, we describe the overall characteristics of the pharmaceutical Industry in general. Secondly, we develop a value chain based framework of analysis for China’s pharmaceutical industry. We divide the pharmaceutical industry value chain into three tiers: the initial market, the middle market and the end market. Based on these works, we analyze the profound impacts of Electronic Commerce on the transformation of China’s pharmaceutical Industry, with particular emphasis on the evolution of market structure and the re-allocation of market power due to the introduction of E-Commerce procedures.