Author(s) Klaus Gugler, Lukas Pirnbacher, Florian Szücs
We exploit the regulatory environment in the Austrian pharmaceutical market to study the effects of price regulation on market outcomes and consumer welfare. We find that product acquisitions of drug producers have a differential impact in regulated and unregulated market segments. Regression results show that M&A increase prices where regulation is absent. While variety decreases in both segments, the effects are smaller under regulation. Counterfactual simulations confirm binding price constraints and show that mergers caused modest consumer surplus losses in unregulated segments, while welfare remained unchanged in regulated ones. Thus, regulation can successfully mitigate the effects of market power. (JEL: L65; I18; D22; I11; L51; G34)
Keywords: pharmaceuticals; regulation; market power; consumer welfare; pharma M&A; product variety.