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Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry

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  • ALICE BONAIMÉ
  • YE (EMMA) WANG

Abstract

Using novel data from the pharmaceutical industry, we study product prices and innovation around mergers. Exploiting within‐deal variation in product market consolidation, we show that prices increase more for drugs in consolidating markets than for matched control drugs. Estimates indicate a 2% average price effect that persists for about one year. Price increases expand with acquirer‐target product similarity and are more pronounced within less competitive product markets with fewer players and no generic competition. Examination of trade‐offs reveals these deals generate significant shareholder value. They also spur labeling and other manufacturing‐related innovation, but not the development of new drugs.

Suggested Citation

  • Alice Bonaimé & Ye (Emma) Wang, 2024. "Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry," Journal of Finance, American Finance Association, vol. 79(3), pages 2195-2236, June.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:3:p:2195-2236
    DOI: 10.1111/jofi.13321
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