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

59 Pages Posted: 7 Sep 2019 Last revised: 16 Jun 2020

See all articles by Alice A. Bonaime

Alice A. Bonaime

University of Arizona

Ye (Emma) Wang

University of Arizona - Department of Finance

Date Written: March 15, 2019

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

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 )

Eller College of Management
Department of Finance
Tucson, AZ 85721
United States

Ye Wang

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tuscon, AZ 85721
United States

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