Mergers with interfirm bundling: a case of pharmaceutical cocktails |
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Authors: | Minjae Song Sean Nicholson Claudio Lucarelli |
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Institution: | 1. Bates White Economic Consulting;2. Cornell University and NBER;3. Universidad de los Andes |
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Abstract: | Pharmaceutical cocktails often consist of two or more drugs produced by competing firms. The component drugs are often also sold as stand‐alone products. We analyze the effects of a merger between two pharmaceutical firms selling complements for colorectal cancer treatment. In this setting there are two merger effects: the standard upward pricing pressure due to firms internalizing the substitution between the stand‐alone products, and an additional effect where the firms internalize the impact of selling complements and reduce the price of the cocktail product. The net impact of a merger is a modest price increase, or even a price decrease. |
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