Reprint of: Horizontal mergers and product innovation
File(s)
Accepted version
Author(s)
Federico, G
Langus, G
Valletti, T
Type
Journal Article
Abstract
We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the “price coordination” channel and the internalization of the “innovation externality”. We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.
Date Issued
2018-11-17
Date Acceptance
2018-03-04
Citation
International Journal of Industrial Organization, 2018, 61, pp.590-612
ISSN
0167-7187
Publisher
Elsevier
Start Page
590
End Page
612
Journal / Book Title
International Journal of Industrial Organization
Volume
61
Copyright Statement
© 2018 Elsevier Ltd. All rights reserved. This manuscript is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence http://creativecommons.org/licenses/by-nc-nd/4.0/
Subjects
Social Sciences
Economics
Business & Economics
Innovation
R&D
Mergers
COMPETITION
SCHUMPETER
1401 Economic Theory
Publication Status
Published
Date Publish Online
2018-11-17