Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry
59 Pages Posted: 7 Sep 2019 Last revised: 16 Jun 2020
Date Written: March 15, 2019
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: Suggested Citation