Seeking Efficiency or Price Gouging? Evidence from Pharmaceutical Mergers
70 Pages Posted: 5 Dec 2019 Last revised: 20 May 2020
Date Written: November 1, 2019
We show that pharmaceutical mergers are a response to competitive pressure. Firms whose drugs face more competition tend to become acquirers and these acquirers pursue firms whose drugs hold strong competitive positions in their product spaces. However, we find no evidence of greater post-merger price increases of merging firms’ drugs as compared to a control group. Rather, we find robust support for the efficiency perspective of mergers. Firms with a high product overlap are more likely to merge and mergers are followed by a decline in prices of drugs that are similar across the acquirer and target portfolios.
Keywords: Mergers and Acquisition, Synergy, Market Power, Pharmaceutical Companies, Drug Prices, Efficiency
JEL Classification: G34, G30, I10 I11
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