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Reprint of: Horizontal mergers and product innovation

Giulio Federico, Gregor Langus and Tommaso Valletti ()

International Journal of Industrial Organization, 2018, vol. 61, issue C, 590-612

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.

Keywords: Innovation; R&D; Mergers (search for similar items in EconPapers)
JEL-codes: D43 G34 L13 L40 O30 O31 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:61:y:2018:i:c:p:590-612

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