Dubois, Pierre and Majewska, Gosia (2022) Mergers and advertising in the pharmaceutical industry. TSE Working Paper, n. 22-1380, Toulouse

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In many industries, market structure determines how firms not only compete in terms of prices but also utilize promotional activities. We study how price and advertising strategies change when firms merge in pharmaceutical markets in the US. We show that across all drug markets, although mergers indeed increase prices, advertising spending also decreases. Merger simulations not accounting for advertising reductions may thus obtain biased price eects. Considering the merger effects of two large pharmaceutical companies on an antimicrobial drug market, we estimate a structural model of supply and demand and simulate the merger effect. We find that the merger effect on prices is smaller given the reduction in the amount of advertising. We also provide a simple method through which to evaluate long-term welfare effects using some known value of the sensitivity of innovation to profits.

Item Type: Monograph (Working Paper)
Language: English
Date: October 2022
Place of Publication: Toulouse
Uncontrolled Keywords: Merger, Advertising, Drugs, Welfare, Innovation
JEL Classification: I10 - General
L22 - Firm Organization and Market Structure - Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
L41 - Monopolization; Horizontal Anticompetitive Practices
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 15 Nov 2022 13:48
Last Modified: 19 Jan 2023 11:36
OAI Identifier: oai:tse-fr.eu:127469
URI: https://publications.ut-capitole.fr/id/eprint/46419
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