Mergers that Matter: The Impact of M&A Activity in Prescription Drug Markets

51 Pages Posted: 8 Aug 2023

See all articles by Josh Feng

Josh Feng

University of Utah - David Eccles School of Business

Thomas Hwang

Harvard University - Brigham and Women's Hospital

Yunjuan Liu

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Luca Maini

Harvard Medical School

Date Written: July 27, 2023

Abstract

Which acquisitions lead to higher prices? We answer this question using a novel dataset of pharmaceutical acquisitions of branded, on-patent drugs from 2007–2019. Our results uncover two patterns. First, we exploit regulation that exempts low-value deals from being disclosed to antitrust authorities to show that regulatory scrutiny minimizes the effect of horizontal acquisitions, likely through a screening mechanism. Low-value deals that fall below the disclosure threshold led to an average 60 percent increase in net price, whereas remaining deals only result in a small and statistically insignificant increase in net price. Second, we find that cross-market acquisitions by large pharmaceutical companies do not lead to higher prices on average — although we cannot reject the possibility that they might have a small inflationary effect.

Keywords: Mergers and Acquisitions, Drug Pricing, Pharmaceutical Industry, Antitrust, Bargaining

JEL Classification: I11, K21, L13, L65

Suggested Citation

Feng, Josh and Hwang, Thomas and Liu, Yunjuan and Maini, Luca, Mergers that Matter: The Impact of M&A Activity in Prescription Drug Markets (July 27, 2023). Available at SSRN: https://ssrn.com/abstract=4523015 or http://dx.doi.org/10.2139/ssrn.4523015

Josh Feng (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Thomas Hwang

Harvard University - Brigham and Women's Hospital ( email )

Yunjuan Liu

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC
United States

Luca Maini

Harvard Medical School ( email )

Boston, MA
United States

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