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Horizontal mergers and product innovation

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Title: Horizontal mergers and product innovation
Authors: Federico, G
Langus, G
Valletti, T
Item 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.
Issue Date: 1-Jul-2018
Date of Acceptance: 4-Mar-2018
URI: http://hdl.handle.net/10044/1/64855
DOI: https://dx.doi.org/10.1016/j.ijindorg.2018.03.001
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/
Keywords: Social Sciences
Economics
Business & Economics
Innovation
R&D
Mergers
MARKET-STRUCTURE
COMPETITION
SPILLOVERS
SCHUMPETER
1401 Economic Theory
Publication Status: Published
Online Publication Date: 2018-03-15
Appears in Collections:Imperial College Business School