Mergers with future rivals can boost prices, bar entry, and intensify market concentration

It is theoretically shown that mergers between incumbents and future rivals can boost prices and harm consumers. But in the absence of empirical evidence, no merger has been litigated on this basis. To offer empirical insights, I study the acquisition case of a promising future rival by a large incumbent pharmaceutical firm. First, there is strong and causal evidence that the merger has enabled higher prices for the incumbent. Mergers with future rivals are practically unregulated and, if wisely exploited, they can circumvent antitrust enforcement and serve as entry barriers. Second, in contrast to the mainstream prediction that mergers with future rivals do not alter market concentration, I report a large post-merger increase in the market concentration. I introduce advertisement expenditure as a possible channel of effect between the merger and market concentration. Third, I document spillover effect of the merger on the incumbent's immediate rivals without affecting its distant rivals.