The pharmaceutical industry has recently experienced numerous mergers and acquisitions. The number of studies which investigate the effects of pharmaceutical mergers is, however, rather limited. This paper studies the effects of the Pfizer and Pharmacia (2003) merger on competition in the Swiss pharmaceutical market and compares the merger predictions of the Swiss Competition Commission (COMCO) with the post-merger market developments. We find that the merger has had a miniscule impact on the Swiss pharmaceutical market. This has primarily to do with the fact that the product portfolios of both companies have shown no or only slight overlaps. In both cases of potential anticompetitive effects, the companies proposed to divest some of their assets in order to prevent a further strengthening of their dominant position. This included products in the development phase which were not available on the market at the time of the decision. In other markets in which either an overlapping of businesses of both companies existed or in which one of the merging entities held a dominant market position, no significant effects of the merger were noticed. This might have to do with both, existing price regulation in the Swiss drug industry and changes in Pfizer’s product portfolio following the merger. Furthermore, with respect to other potentially interesting market characteristics such as investment behaviour, R&D, sales or employment, available data on global company level does not allow an isolation of the possible effects of the merger. On the level of the specific merger case, we can deduce that the COMCO assessment of actual and potential competition in the Swiss pharmaceutical market has been largely correct. The market structure seems to be rather stable overall, however, varies within the different product categories. The competitive situation has been correctly assessed by the COMCO – for example, with respect to the presence of market entry barriers or the role of potential competition. Generally, the dynamic structure of the market often complicates the interpretation of, e.g., market share developments after the merger. On a more general level, the paper contributes to the growing literature on the evaluation of merger enforcement. Although the focus here is on an ex-post evaluation of a single merger decision, the fundamental problems of ex-post studies are nicely illustrated. In order to fully evaluate the work of the competition authority in a particular case, detailed data (and complementary information) is necessary to allow the use of sophisticated econometric techniques. However, such information is typically difficult to acquire, largely due to data confidentiality issues. In any case, it should be stated clearly that this paper focused on an assessment of a single merger and therefore does not allow any conclusion on a more general level. An evaluation of the overall merger enforcement policy in Switzerland or in another country is forced to use a much larger sample of mergers in order to allow the derivation of broader conclusions about the state of merger control and possible reform needs.
Leheyda, Nina, Patrick Beschorner and Kai Hüschelrath (2011), Ex-post Assessment of Merger Effects: The Case of Pfizer and Pharmacia (2003), ZEW Discussion Paper No. 11-035, Mannheim, published in: Journal of Advanced Research in Law and Economics. Download