Context: Dramatic increases in pharmaceutical merger and acquisition activity since 2010 suggest we are currently in the midst of a third wave of industry consolidation.

Methods: Reviewing 168 economic, legal, medical, industry, and government sources, we examine the effects of consolidation on competition and innovation and explore how industry attributes complicate M&A regulation in a pharmaceutical context.

Findings: We find that, in spite of certain metrics that might argue otherwise, consolidation consistently reduces innovation and harms the public good. We also find that several factors within the pharmaceutical industry impede proper evaluation of proposed mergers. Because consumer choice across substitutes is limited, pharmaceutical markets frustrate conventional methods of defining markets. Volume bargaining in the pharmaceutical supply chain and common ownership of pharmaceutical firms by asset managers further complicate the definitional process. Hence, the Herfindahl-Hirschman Index (HHI), one measure used by the Federal Trade Commission and Department of Justice to screen for concerning M&A activity, sometimes depends on faulty market definitions but also fails to capture the implications of consolidation on future market share.

Conclusions: We describe ways to improve how pharmaceutical markets are defined, highlight quantitative alterations to HHI to account for common ownership, and propose areas requiring further research.

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