Evaluating Mergers in the Presence of Dynamic Competition Using Impacts on Rivals

Posted: 3 Jul 2015

See all articles by Darren Filson

Darren Filson

Claremont McKenna College - Robert Day School of Economics and Finance

Saman Olfati

Claremont McKenna College

Fatos Radoniqi

Whittier College

Date Written: May 26, 2015

Abstract

We present evidence that event studies can help antitrust agencies forecast impacts of mergers on innovation. In large pharmaceutical mergers, cumulative abnormal returns on portfolios of rivals predict post-merger changes in the combined firm’s R&D intensity. More favorable impacts on rivals are associated with lower intensities, which is consistent with softening competition. Matching merging firms to similar non-merging firms suggests we can attribute the changes in R&D intensity to the mergers. We highlight the importance of deducting “expenses” associated with in-process R&D and provide guidance on how to define rivals, construct portfolios and use event studies in merger evaluations.

Keywords: pharmaceutical mergers, mergers and R&D, mergers and innovation, merger evaluation, impacts on rivals, event studies

JEL Classification: G34, L65, G14, L44

Suggested Citation

Filson, Darren and Olfati, Saman and Radoniqi, Fatos, Evaluating Mergers in the Presence of Dynamic Competition Using Impacts on Rivals (May 26, 2015). Journal of Law and Economics, Vol. 58, 2015, Available at SSRN: https://ssrn.com/abstract=2625447

Darren Filson (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

HOME PAGE: http://www.cmc.edu/academic/faculty/profile/darren-filson

Saman Olfati

Claremont McKenna College ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Fatos Radoniqi

Whittier College ( email )

13406 E. Philadelphia Street
Whittier, CA 90608
United States
5629075498 (Phone)

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