Seeking Efficiency or Price Gouging? Evidence from Pharmaceutical Mergers

70 Pages Posted: 5 Dec 2019 Last revised: 20 May 2020

See all articles by Mosab Hammoudeh

Mosab Hammoudeh

California State University, Fullerton - College of Business and Economics

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Date Written: November 1, 2019

Abstract

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

Suggested Citation

Hammoudeh, Mosab and Nain, Amrita, Seeking Efficiency or Price Gouging? Evidence from Pharmaceutical Mergers (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3489638 or http://dx.doi.org/10.2139/ssrn.3489638

Mosab Hammoudeh (Contact Author)

California State University, Fullerton - College of Business and Economics ( email )

Fullerton, CA
United States

Amrita Nain

University of Iowa - Henry B. Tippie College of Business ( email )

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