The study, Merger efficiency and coordinated effects: nothing to sneeze at? Evidence from cough and cold medicines in the Philippines, examined what happened after pharmaceutical giants GSK and Pfizer combined their consumer healthcare businesses in 2019.
Researchers from Loughborough University, Norwich Business School, the Philippine Competition Commission, the University of the Philippines and E.CA Economics – a BRG (Berkeley Research Group) company – in London, found that the deal appears to have made part of the combined business cheaper to operate.
However, those savings did not simply result in lower prices across the market. Instead, the price of medicines sold by one major rival increased substantially.
The findings could have important implications for competition authorities deciding whether to approve future mergers between large companies.
Lead author Professor Farasat Bokhari said: “When companies want to merge, they can argue that combining their operations will create ‘efficiencies’.
“In simple terms, a bigger combined company might be able to manufacture, distribute or sell its products more cheaply.
“The argument is that these savings can compensate for the loss of competition caused by turning two competing businesses into one.
“But our new research suggests the reality can be more complicated.”
The researchers studied the prices of over-the-counter cough and cold medicines in the Philippines before and after GSK and Pfizer combined their consumer healthcare businesses in 2019.
The companies had predicted the deal would eventually save around £500 million a year.
The study found evidence that some efficiencies were real: the estimated cost of supplying Pfizer products fell by 9.43%, while their prices dropped by 6.57%.
However, consumers did not see lower prices across the market. GSK's prices increased by an estimated 3.25%, while Sanofi, a major international competitor, raised its prices by 8.55%.
Prices from cheaper local manufacturer Unilab remained broadly unchanged.
The researchers found evidence consistent with greater coordination between GSK/Pfizer and Sanofi after the merger.
“This does not mean the companies explicitly agreed on prices,” said Prof Bokhari.
“Instead, having fewer independent competitors makes it easier for companies to coordinate on prices without explicitly agreeing to do so, which in turn means that prices are higher than what we would expect under competition.”
The findings suggest that mergers can create genuine savings without necessarily benefiting consumers.
The researchers argue that competition authorities should therefore consider not only whether a merger makes companies more efficient but also whether the merger makes coordination more likely and hence does not result in lower prices for the consumers.
ENDS