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How mergers affect innovation: Theory and evidence

Justus Haucap, Alexander Rasch and Joel Stiebale

International Journal of Industrial Organization, 2019, vol. 63, issue C, 283-325

Abstract: This article analyses how horizontal mergers affect innovation of the merged entity and its non-merging competitors. Using data on horizontal mergers among pharmaceutical firms in Europe and applying propensity score matching estimators, we find that average patenting and R&D of the merged entity and its rivals declines substantially in post-merger periods. We show that this result is consistent with the predictions from an oligopoly model with heterogeneous firms, as well as a patent race model, when pre-merger R&D intensity is sufficiently high. Consistent with our theoretical model, we find that negative effects of mergers on innovation are concentrated in markets with high R&D intensity and in technology classes with overlap in pre-merger innovation activities of merging and rival firms.

Keywords: Mergers & acquisitions; Merger policy; Innovation; R&D incentives (search for similar items in EconPapers)
JEL-codes: D22 L13 L40 L65 O31 O32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (35)

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Working Paper: How Mergers A ffect Innovation: Theory and Evidence (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:63:y:2019:i:c:p:283-325

DOI: 10.1016/j.ijindorg.2018.10.003

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