The John M. Olin Center

Paper Abstract

270. Dror Ben-Asher, In Need of Treatment? Merger Control, Pharmaceutical Innovation & Consumer Welfare, 12/99; subsequently published in Journal of Legal Medicine, Vol. 21, 2000, 271-349.

Abstract: The application of the antitrust laws to high technology industries - as seen, for example, in the recent Microsoft and Intel cases - is subject to much controversy. All the same, little attention has been paid to the antitrust implications of combinations in the research-based pharmaceutical sector. In attempting to prevent harm to competition and consumers, antitrust merger analysis ought to focus on industry-specific conditions. Indeed, the unique and strictly regulated pharmaceutical industry deserves a separate treatment. Accordingly, this paper makes two basic claims. First, competition in markets for prescription drugs is primarily over new treatments of superior quality, and barriers to entry are exceptionally high. A separate forward-looking merger analysis focusing on drug innovation markets is therefore an appropriate tool for preventing post-merger neglect, or delayed introduction, of experimental treatments for which consumers - patients - may be desperately waiting. Second, in deciding whether or not to investigate and challenge a merger, the antitrust enforcement agencies should look beyond the current size, sales and assets of the merging firms. Simply put, it is the merging firms' respective share and strength in particular therapeutic R&D markets, rather than their current share in markets for existing treatments, which should be the determining factor. It follows that the law and practice must embrace not only large mergers but also - provided they have a sufficiently large share of the R&D market for a particular disease - mergers involving currently small, perhaps even loss-making, but highly innovative, drug firms.

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