Mergers with interfirm bundling: a case of pharmaceutical cocktails

Pharmaceutical cocktails often consist of two or more drugs produced by competing firms. The component drugs are often also sold as stand-alone products. We analyze the effects of a merger between two pharmaceutical firms selling complements for colorectal cancer treatment. In this setting there are two merger effects: the standard upward pricing pressure due to firms internalizing the substitution between the stand-alone products, and an additional effect where the firms internalize the impact of selling complements and reduce the price of the cocktail product. The net impact of a merger is a modest price increase, or even a price decrease.