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

University of New Orleans

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)

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States
2198809523 (Phone)

Amrita Nain

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

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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