This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Merging companies might become cheaper and more efficient to run, but savings are not necessarily passed on to shoppers—and in some cases, customers end up paying more—according to new research. The study examined what happened after pharmaceutical giants GSK and Pfizer combined their consumer health care businesses in 2019.
Researchers from Loughborough University, the University of East Anglia (UEA), 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, published in the Southern Economic Journal, could have important implications for competition authorities deciding whether to approve future mergers between large companies. Lead author Professor Farasat Bokhari, from Loughborough University, 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 health care 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%.
Co-author Professor Sean Ennis, of UEA's Norwich Business School, said, "We confirm efficiencies for one of the merging firms, something not widely studied. Nonetheless, these did not ultimately lead to lower prices for all products." 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 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.
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