Horizontal Mergers and Incremental Innovation

Marc Bourreau, Bruno Jullien () and Yassine Lefouili
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Bruno Jullien: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We study the impact of horizontal mergers on the incentives of merging firms to invest in incremental innovation. We provide a decomposition of this impact that clarifies the various forces at work and the differences between demand‐enhancing and cost‐reducing innovation. Moreover, we derive sufficient conditions for a merger to either reduce or raise the merging firms' incentives to innovate, and show that the comparison of the price diversion ratio and the innovation diversion ratio can help screen mergers. We also uncover a useful connection between the level of production synergies induced by a merger and its impact on innovation.

Keywords: Horizontal mergers; Innovation; Competition (search for similar items in EconPapers)
Date: 2026-02-25
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Published in RAND Journal of Economics, 2026, 57 (1), pp.122-139. ⟨10.1111/1756-2171.70045⟩

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Related works:
Journal Article: Horizontal Mergers and Incremental Innovation (2026)
Working Paper: Horizontal Mergers and Incremental Innovation (2024)
Working Paper: Horizontal Mergers and Incremental Innovation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05686571

DOI: 10.1111/1756-2171.70045

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