Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry

Abstract

Using novel data from the pharmaceutical industry, we study the impact of mergers on product prices and innovation. Exploiting within-deal variation in product market consolidation, we show prices increase 2.4–3.5% more within drugs belonging to consolidating markets than within matched control drugs. Elevated prices persist for two years. Price increases are more pronounced within concentrated product markets and for acquisitions of drugs still in the pipeline. These findings are consistent with the effects of market power consolidation from mergers outweighing synergistic gains. Examination of trade-offs reveals these deals generate significant shareholder value but fail to spur meaningful innovation.

Keywords: Mergers and acquisitions, product market competition, innovation, pharmaceuticals

JEL Classification: G30, G34, O30, L11