Do Mergers Save Lives?

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 drugs sold by matched non-acquiring firms. Price increases are more pronounced for deals resulting in greater market power consolidation and within drugs whose consumers are less price sensitive, but absent for drugs already shielded from competition. Rival drug prices rise as well, consistent with a spillover effect into the broader product market. We find no evidence of mergers facilitating or incentivizing innovation — a potential tradeoff to higher product prices. In sum, the average pharmaceutical merger increases drug prices without expanding new drug development.

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

JEL Classification: G30, G34, H51, I18