Review of Industrial Organization 19: 181–197, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Innovation and Merger Decisions in the
ELEANOR J. MORGAN
School of Management, University of Bath, Claverton Down, Bath BA2 7AY, U.K.
Abstract. There is increasing public policy concern about the potential effects of mergers on innov-
ation. This paper provides a comparative analysis of approaches to innovational competition taken
by the E.U. and U.S. merger authorities in a sample of three recent, major, pharmaceutical mergers.
The European Commission’s approach appears lighter handed and places more explicit emphasis
on effects in downstream markets. The uncertainties in the analysis of dynamic effects of mergers
on innovation, even in pharmaceuticals, suggest the need for a cautious approach and for careful
framing of any merger remedies where R&D projects and components, rather than approved drugs,
Key words: Competition policy, innovation, innovation markets, mergers, pharmaceutical industry.
The recent consolidations in R&D intensive industries during the 1990s have raised
the general question of how the possible effects of mergers on innovation are best
assessed. This issue has gained most attention in the United States where a new
approach to investigating the effects of mergers on dynamic efﬁciency, based on the
analysis of so called “innovation markets”, has been proposed. The pros and cons
of innovation market analysis have been vigorously debated there as, for example,
in the Federal Trade Commission’s 1995 hearings on global and innovation based
competition (FTC, 1996) and in a special issue of the American Antitrust Law
Journal (1995). This debate is still ongoing in the U.S. (see Tom and Newberg,
1997; and Landman, 1998a).
Frameworks for assessing mergers in R&D intensive industries are now at-
tracting the attention of the European authorities (see, for example, OECD, 1997;
Temple Lang, 1997; and Pons, 1998). There has, however, been much less discus-
sion of the theoretical underpinnings of this aspect of merger policy in Europe.
The study of the actual practice of the European Commission and comparat-
An earlier version of this paper was presented in the competitive track of the 26th Annual
Conference of the Academy of International Business (U.K. Chapter), Stirling, April 1999. I am
particularly grateful to Margaret Sharp, Michael Utton and Tim Wakeley for their helpful suggestions
on an early draft and to this Journal’s anonymous referees for useful comment. The views expressed
and any errors or omissions are the author’s responsibility.