Tuesday, November 3, 2015

Ownership Changes and Pricing

One of the topics in Industry Analysis revolves around horizontal mergers and also the incentive that exist in firms acquiring other firms in the same industry.  In many instances expected gains in profits are unrealized as demonstrated in class.  Here is an alternative example, where firms in the same industry are acquiring rival firms and simultaneously making a profit by changing the prices of the products.  Pharmaceutical companies are raising prices on acquired firms products and this is increasing the profits of the purchasing firms.  It is cheaper than developing new pharmaceutical drugs and thus more profitable.

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