Pharmaceutical Innovation in EU Merger Control: (Ir)reconcilabilities Between Legal Idealism and Economic Reality

Abstract

This research examines the discrepancies between the decisional practice of the European Commission in horizontal merger control and the needs of innovation development in the pharmaceutical industry. The question is which ones of these discrepancies should be resolved and which ones shouldn’t. After reviewing the pharmaceutical industry, it is clear that the R&D process and subfactors have changed such as probabilities of success and the declining R&D efficiency. Economic theories on innovation, competition, and M&As are fragmented. The decisional practice of the Commission views further back into the R&D pipeline. By introducing innovation spaces, the link with relevant product markets was cut. The noble goal of the Commission, which is defending the innovation spaces instead of only focussing on guiding a single product to the market, is a change in its decisional practice. At first sight, this constitutes friction between corporate strategic motivations for mergers and the objective of the Commission to promote competition in innovation. However, the Commission might not only be better off using the ‘innovation spaces’-approach, because it preserves innovation instead of taking the gamble of identifying product markets at an early R&D stage. It also creates the positive by-product of prevailing the individual company of declining innovation performance after the merger.