Editorial composite showing a pharmacy worker facing medicine shelves beside a close-up of hands signing a contract.

Why merger cost savings do not always reach consumers

Written by Joseph Nordqvist

Published: 15:52, August 22, 2026

A study of GSK and Pfizer’s 2019 consumer-health combination in the Philippines estimates that the marginal cost of supplying Pfizer cough and cold medicines fell by 9.43%, yet the benefits were uneven. Pfizer’s prices declined, while prices rose for GSK and rival Sanofi. The findings show why lower corporate costs and lower prices are related, but not the same thing.

Companies seeking approval for a merger often argue that combining production, purchasing or distribution will make the new business more efficient. That can be true. It does not follow, however, that every saving will be passed to customers.

The new research, published in the Southern Economic Journal, examined over-the-counter cough and cold medicines sold in the Philippines. It was conducted by Farasat A. S. Bokhari, Sean Ennis, Carlos Vega and Weijie Yan.

Pfizer’s estimated costs and prices both fell

GSK and Pfizer announced their consumer-health joint venture in December 2018. GSK held 68% and Pfizer 32%. At the time, GSK forecast annual cost savings of £500 million by 2022.

The researchers found evidence that part of the efficiency case was realised. Their preferred estimates indicate that Pfizer’s marginal costs fell by 9.43% after the transaction, while its prices declined by 6.57%.

Marginal cost means the estimated extra cost of supplying one more unit. It is not the company’s total cost, and it cannot be read directly from a shop price. The researchers inferred it using a model of consumer demand and companies’ pricing behaviour.

The result for GSK was different. Its prices increased by an estimated 3.25%, and the evidence of lower marginal costs was less robust. Across GSK and Pfizer together, the opposing price movements produced no net increase in their combined prices, partly because Pfizer had the larger share of the two businesses in the market studied.

That combined average can conceal what happened inside the portfolio. One part of the business became cheaper to operate and lowered prices. Another raised them.

A rival’s response changed the market picture

The clearest warning for regulators came from outside the merging companies. The study estimates that Sanofi’s prices rose by 8.55%, while prices at Unilab, the large Philippine manufacturer, did not change significantly.

A rival can raise prices without any agreement. In markets where companies sell differentiated products, one supplier’s price increase may give another room to charge more. Economists call the standard version of this behaviour Nash-Bertrand competition: each company chooses its own price while taking rivals’ prices into account.

The authors also tested whether the pattern was consistent with greater coordination after the number of independent decision-makers fell. In competition economics, coordination can be tacit. It does not require companies to communicate or enter an illegal price-fixing agreement.

The model produced evidence consistent with greater coordination between GSK/Pfizer and Sanofi, but not between GSK/Pfizer and Unilab. The authors note that the three international groups meet across many markets, whereas Unilab’s competitive overlap is more regional.

This part of the evidence needs care. The main coordination estimate was close to the model’s upper limit, but it lost statistical significance when uncertainty in the estimated demand parameters was carried through the calculation. Alternative analyses preserved the broad contrast between Sanofi and Unilab, and one retained significance after that adjustment. The study therefore supports a coordination interpretation, but it does not prove one.

It also provides no evidence of communication or unlawful collusion by the companies.

A lower price can still produce a higher markup

One of the study’s most useful insights is that price, cost and competition can move in different directions.

The researchers estimated that markups increased for both GSK and Pfizer. A markup is the portion of a price above marginal cost. Pfizer could therefore cut its price and still earn a wider estimated margin on each unit because its cost fell by more than its price.

This is why a price reduction does not, by itself, show that competition has become stronger. It may instead show that a large cost saving was only partly passed on.

The reverse is also important. A merger can create genuine efficiencies inside the combined company while weakening the competitive pressure that determines how those efficiencies are shared. Cost savings concern what the business can produce more cheaply. Consumer benefit depends on what the market gives it an incentive to do with the saving.

What the regulator expected

The Philippine Competition Commission cleared the transaction in June 2019. It concluded that the combined business would gain an ability to exercise market power in adult cough medicines, but would not gain an enhanced incentive to raise prices because customer diversion between the parties was not significant and other suppliers would continue to constrain it.

The commission also found before the transaction that market conditions were not likely to change significantly in a way that would enhance coordinated effects. The new paper is valuable precisely because it compares those forward-looking judgements with evidence from the market after the deal.

That does not mean the original decision was unreasonable. Merger authorities must assess a market that does not yet exist. They can test business plans, likely savings, customer switching and entry barriers, but post-merger behaviour remains a forecast.

The case suggests that three questions should be kept separate. Are the claimed savings real and specific to the merger? How much of them is likely to reach customers? And could the transaction change the pricing incentives of competitors that are not part of the deal?

That last question is easy to overlook. In this study, the largest estimated price increase was at Sanofi, not at Pfizer.

One market cannot settle the wider merger debate

The research covers one medicine category in one country. Its cost and coordination results are model-based, and the authors caution that the coordination estimate is sensitive to how demand is specified. The findings should not be treated as evidence about every product sold by the companies, other countries or the current pricing of Haleon, the consumer-health business demerged from GSK in July 2022.

Even with those limits, the study makes a durable point. Efficiency is not a substitute for competition. A merger can lower the cost of supplying a product and still leave consumers with only part of the benefit, while rivals respond to a market with fewer independent players.

For competition authorities, the difficult question is not simply whether a merger will save money. It is who is likely to keep the saving.

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