Objectives: This research employs cognitive hierarchy theory to explore pharmaceutical manufacturer strategies in formulary contracting with the aim of improving the prediction of negotiating behavior. We assess whether manufacturers play the strategy suggested by a Nash equilibrium or if they employ many levels of strategic thinking contingent upon the number and sophistication of competitors in select therapeutic classes and on the percent of a player’s total revenue generated by a product. Methods: The level of competition is measured by the number of manufacturers in a therapeutic class, and sophistication is proxied by the manufacturer’s number of approved prescription drugs. Expected rebate amounts are compared with actual rebate data available in the public domain. This comparison suggests the strategic levels at which manufacturers are playing (i.e. Level-k Thinking). Iterated elimination of dominated strategies is used to determine the Nash equilibrium of rebate strategies among pharmaceutical manufacturers. These strategies are compared to empirical rebate levels in published research by therapeutic class. Results: Players are predicted to offer high rebates in the Nash equilibrium, which results in suboptimal payoffs. Yet, rebates vary widely by therapeutic class and by manufacturer. Therapeutic classes with more players offer higher rebates; however, some manufacturers with several approved products may offer high rebates, which contradicts the theory that more experienced players will bid more strategically. Conclusions: Pharmaceutical manufacturers display a range of sophistication in market access. This sophistication does not necessarily translate into higher level strategic playing in formulary negotiations. The analysis of rebating behavior on company returns via simulation models should incorporate levels of competition, competitor sophistication, and impact to total sales to determine optimal strategies.