Horizontal mergers and product innovation
File(s)
Accepted version
Author(s)
Federico, Giulio
Langus, Gregor
Valletti, Tommaso
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
2018-07-01
Date Acceptance
2018-03-04
Citation
International Journal of Industrial Organization, 2018, 59, pp.1-23
ISSN
0167-7187
Publisher
Elsevier
Start Page
1
End Page
23
Journal / Book Title
International Journal of Industrial Organization
Volume
59
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/
Identifier
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000439391000001&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=1ba7043ffcc86c417c072aa74d649202
Subjects
Social Sciences
Economics
Business & Economics
Innovation
R&D
Mergers
MARKET-STRUCTURE
COMPETITION
SPILLOVERS
SCHUMPETER
Publication Status
Published
Date Publish Online
2018-03-15