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Mergers and innovation: the case of the pharmaceutical industry


  • Ornaghi, Carmine


This paper takes a new look at the effects of mergers on innovation by analysing the relationship between ex-ante technological (and product) relatedness of acquirers and targets and post-merger performances. The analysis is conducted using data on consolidations in the pharmaceutical industry for the period 1988-2004. Empirical results show that merger deals are more likely to be signed between firms with related technologies and drug portfolio. I .find that merged companies have on average, worst performances than the group of non-merging firms and that, contrary to what may be the common wisdom, higher levels of technological relatedness are associated with poorer performances. Finally, consolidations between large pharmaceutical companies seem to have a detrimental impact on the incentives of competitors to undertake research in those therapeutic areas where both acquirer and target are active players.

Suggested Citation

  • Ornaghi, Carmine, 2006. "Mergers and innovation: the case of the pharmaceutical industry," Discussion Paper Series In Economics And Econometrics 605, Economics Division, School of Social Sciences, University of Southampton.
  • Handle: RePEc:stn:sotoec:605

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    References listed on IDEAS

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    6. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    7. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 455-489.
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    10. Alan Marco & Gordon Rausser, 2011. "Complementarities and spillovers in mergers: an empirical investigation using patent data," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(3), pages 207-231.
    11. White, Lawrence J, 1987. "Antitrust and Merger Policy: A Review and Critique," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 13-22, Fall.
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    Cited by:

    1. Galasso, Alberto, 2007. "Broad cross-license agreements and persuasive patent litigation: theory and evidence from the semiconductor industry," LSE Research Online Documents on Economics 6718, London School of Economics and Political Science, LSE Library.
    2. Alberto Galasso, 2007. "Broad Cross-License Agreements andPersuasive Patent Litigation: Theory andEvidence from the Semiconductor Industry," STICERD - Economics of Industry Papers 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Hussinger, Katrin, 2007. "Inventors? Response to Firm Acquisitions," ZEW Discussion Papers 07-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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