The Effect of Mergers on Innovation

Kaustav Das, Tatiana Mayskaya and Arina Nikandrova

American Economic Journal: Microeconomics, 2026, vol. 18, issue 2, 348-94

Abstract: We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: It may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes.

JEL-codes: D21 D83 G34 O31 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mic.20240062

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