Mergers, Corporate Financing, and Managerial Incentives in R&D Intensive Industries

James Harold Cardon () and D. Sasaki

No 712, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We characterise the interplay between oligopolistic firms' strategic decisions in product development, and their incentives for (or against) merger. In an R&D intensive industry where newly developed products can be awarded exclusive patent protection, individual firms' profit maximisation can result in effort duplication, which socially suboptimal. Such strategic incentives can be curtailed by [1] tightening corporate financing, [2] corporate profit taxation, [3] reduction in R&D subsidies, or [4] delegating product development decisions to short-lived managers. The former two ([1] and [2]) also discourage merger. On the other hand, the latter two ([3] and [4]) indirectly encourage merger, as the managerial incentives discouraged away from effort duplication are a consequence of oligopolistic competition, so that the owners of these firms have extra incentives toward merger to eliminate competition altogether.

Keywords: PATENTS; MERGERS; RESEARCH AND DEVELOPMENT (search for similar items in EconPapers)
JEL-codes: G34 L41 O32 (search for similar items in EconPapers)
Date: 1999

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Persistent link: http://EconPapers.repec.org/RePEc:mlb:wpaper:712

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