A corporate merger can make medicines cheaper to produce without making them cheaper to buy. New research examining the 2019 combination of the consumer healthcare businesses of pharmaceutical giants GSK and Pfizer suggests that the savings created by a merger may be absorbed by companies, offset by higher prices elsewhere, or even accompanied by broader changes in the way remaining competitors behave. The study, based on the market for over-the-counter cough and cold medicines in the Philippines, provides a detailed example of how efficiency gains and reduced competition can occur at the same time.
The findings challenge a common argument used to support large corporate mergers. Companies seeking approval for a deal often maintain that combining their operations will produce efficiencies: factories can be consolidated, distribution networks streamlined, purchasing power increased and administrative costs reduced. In theory, those lower costs may allow the merged company to reduce prices, improve products or compete more aggressively. Competition authorities therefore sometimes weigh promised efficiencies against the loss of an independent competitor. The new analysis indicates that this calculation can be far more complicated when a merger changes the structure of an entire market.
GSK and Pfizer completed the combination of their consumer healthcare operations in 2019. Before the deal, the two companies operated as separate businesses selling well-known over-the-counter products, including medicines used to treat coughs and colds. The companies predicted that the transaction would eventually generate approximately £500 million in annual savings. Researchers from Loughborough University, the University of East Anglia, the Philippine Competition Commission, the University of the Philippines and E.CA Economics studied market data from the Philippines to investigate whether those anticipated efficiencies appeared in practice and whether consumers benefited from them.
Their analysis found evidence that at least part of the merger produced genuine operating savings. The estimated cost of supplying Pfizer products fell by 9.43% after the businesses were combined. At the same time, prices for those products declined by 6.57%. This pattern is consistent with an improvement in production or distribution efficiency being passed through, at least in part, to consumers. The result is significant because merger studies often focus on whether prices increase after a transaction, while paying less attention to whether one of the merging companies actually becomes less expensive to operate.
The researchers’ findings also show why a lower cost for one group of products does not necessarily translate into lower prices throughout a market. While Pfizer’s prices fell, GSK’s prices rose by an estimated 3.25%. Sanofi, a major international competitor, increased its prices by 8.55%. Prices charged by Unilab, a lower-priced local manufacturer, remained broadly unchanged. The contrasting movements suggest that the merger did not create a uniform price reduction. Instead, its effects varied according to the company, brand and competitive relationship involved.
One possible explanation is known in competition economics as a coordinated effect. Coordination does not require companies to communicate directly or make an explicit agreement about prices. In a market with fewer major independent competitors, each company may find it easier to predict how rivals will respond to a price change. That predictability can reduce the incentive to compete aggressively. A company considering a price increase may expect competitors to follow rather than undercut it, allowing prices across the market to rise without any formal collusion.
The study found evidence consistent with this kind of increased coordination between the combined GSK/Pfizer business and Sanofi after the merger. The researchers stress that their results do not demonstrate that the companies explicitly agreed to set prices. Instead, the market may have become more conducive to parallel decisions because one independent competitor had disappeared through the merger. In economic terms, the transaction may have produced efficiencies on one side while increasing the likelihood of coordinated behaviour among the remaining large firms.
That distinction matters because efficiency and competition are not interchangeable. A company can reduce its costs while still charging higher prices if competitive pressure weakens. The savings may improve profit margins rather than being fully transferred to shoppers. At the same time, a rival that did not gain the same production efficiencies may still raise prices if the market environment makes aggressive competition less attractive. Consumers may therefore see a modest reduction for some brands but pay more for others, with the overall effect depending on which products they buy and how sensitive they are to price differences.
The researchers argue that competition authorities should examine both sides of this equation when assessing mergers. Standard analysis may ask whether a combined company will eliminate duplicated costs, increase productivity or lower the cost of supplying a product. Those questions remain important, but they do not reveal whether the deal will make coordination easier among the businesses left in the market. Authorities may also need to study the number and strength of remaining competitors, the degree to which products are substitutes, the transparency of prices and the ability of firms to monitor one another’s decisions.
The research, published in the Southern Economic Journal, offers evidence from a specific national market and product category, so its results should not automatically be applied to every merger or pharmaceutical market. Nevertheless, over-the-counter medicines provide a useful setting for studying the issue because consumers frequently choose among competing brands, products may be close substitutes and prices can respond rapidly to changes in supply and competition. The case shows that a merger can deliver measurable cost reductions while failing to produce broad consumer benefits. For shoppers, the practical lesson is simple: when two large companies promise that joining forces will make products cheaper, the promised savings are only part of the story. What happens to competition after the deal may determine whether those savings reach the checkout counter.
Subject of Research: The effects of the GSK–Pfizer consumer healthcare merger on operating efficiencies, medicine prices and competition in the Philippine market for over-the-counter cough and cold medicines.
Article Title: Merger efficiency and coordinated effects: nothing to sneeze at? Evidence from cough and cold medicines in the Philippines
News Publication Date: 20-Aug-2026
Web References: http://doi.org/10.1002/soej.70063
References: Southern Economic Journal; DOI: 10.1002/soej.70063
Keywords: pharmaceutical mergers, competition economics, consumer healthcare, over-the-counter medicines, cough and cold medicines, GSK, Pfizer, Sanofi, coordinated effects, merger efficiency, drug prices, Philippines
