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

67 Pages Posted: 7 Sep 2019 Last revised: 12 Aug 2022

See all articles by Alice A. Bonaime

Alice A. Bonaime

University of Arizona

Ye (Emma) Wang

Stevens Institute of Technology

Date Written: March 15, 2019

Abstract

Using novel data from the pharmaceutical industry, we study product prices and innovation
around mergers. Exploiting within-deal variation in product market consolidation, we show prices
increase more within drugs in consolidating markets than within matched control drugs. Estimates
indicate a 2% average price effect that persists for about one year. Price increases expand with
acquirer-target product similarity and are more pronounced within less competitive product markets
with fewer players and no generic competition. Examination of trade-offs reveals these deals
generate significant shareholder value. They also spur labeling and other manufacturing-related
innovation, but not the creation of new drugs.

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

JEL Classification: G30, G34, O30, L11

Suggested Citation

Bonaime, Alice A. and Wang, Ye, Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3445753 or http://dx.doi.org/10.2139/ssrn.3445753

Alice A. Bonaime (Contact Author)

University of Arizona ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Ye Wang

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

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