Effects of "Anti-Competitive" Mergers in R&D Intensive Industries

James Harold Cardon () and D. Sasaki

No 709, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: The effect of merger between competing firms in the same industry is twofold. It increases concentration, which has a negative effect on welfare unless the merger substantially lowers production costs. If products are differentiated, however, there is another effect: before the product is marketed, rationally foresighted firms will choose R&D strategies which will defer price competition in the marketing stage. In the presence of exclusive patent rights, the firms are more likely to "cluster" (i.e. develop the same product) when owned separately, each firm attempting to pre-empt its competitors so as to monopolize the market, as opposed to when controlled jointly. Therefore mergers among firms at the R&D stage are potentially welfare-enhancing. We show that the dominance relation between these two effects, which determines the welfare-optimality of the shareholding structure, is non-monotone in R&D costs as well as in intertemporal preferences.

Keywords: RESEARCH AND DEVELOPMENT; OWNERSHIP; PATENTS (search for similar items in EconPapers)
JEL-codes: L13 D43 O31 (search for similar items in EconPapers)
Date: 1999

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Persistent link: http://EconPapers.repec.org/RePEc:mlb:wpaper:709

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