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

43 Pages Posted: 7 Sep 2019 Last revised: 26 Nov 2019

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. Drugs produced by acquiring firms increase in price approximately 5% more than products sold by matched non-acquiring firms, and these price increases are more pronounced for deals resulting in greater market power consolidation. Consistent with causal identification of enhanced market power around mergers, price increases are significantly greater within drug classes with acquirer/target overlap but absent for drugs already shielded from competition through patents and exclusivity rights. We find no evidence of mergers facilitating or incentivizing innovation—a potential tradeoff to higher product prices.

Keywords: Mergers and acquisitions, product market competition, innovation, pharmaceuticals, drug prices, new drug approval

JEL Classification: G30, G34, H51, I18

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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