Firm Size and Pharmaceutical Mergers: A Cross-National, Cross-Sector Perspective
Concurrences No.3-2021, Forthcoming
21 Pages Posted: 14 Jul 2021
Date Written: May 31, 2021
Mergers in the pharmaceutical sector warrant special scrutiny not only because of concerns over affordability of medicines, but also because the institutional details of pharmaceutical markets complicate the economic analysis of merger effects. Standard anti-trust analysis of mergers, in pharmaceuticals as in other industries, focuses on the proposed merger’s potential to raise prices or reduce innovation by eliminating potential competitors in individual product markets defined by substitutability and geography. Ignored by this exclusive focus on individual markets is the potential for horizontal mergers to increase market power though leverage and cross-market effects enabled by large portfolios that span individual markets.
The thesis of this paper is that leverage and cross-market effects exist in pharmaceutical markets and can be exacerbated by mergers because larger firms have bargaining leverage and other advantages in dealing with reimbursement, marketing and selling in pharmaceutical markets. The relevant institutional details — and the potential risks to competition — differ across countries and between originator and generic drugs. An earlier paper outlined these potential cross-market effects in mergers of originator pharmaceutical firms in the US. This paper extends the analysis to examine how far similar cross-market effects are also a concern in mergers of originator firms in Europe and for generic firms in the US and Europe. It concludes that cross-market effects are potentially of greatest concern for originator pharmaceutical mergers and, to lesser extent, for generics mergers in the US, because the US healthcare system relies primarily on market forces rather than regulation to assure consumer welfare. While cross-market concerns could arise in pharmaceutical mergers in Europe, they are substantially mitigated by various regulatory features of European pharmaceutical markets.
Keywords: pharmaceutical industry, mergers, acquisitions, antitrust, divestitures
JEL Classification: I18, K21, L40, L41, L43, L65, O34, O38
Suggested Citation: Suggested Citation