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Competition, Mergers, and R&D Diversity

Richard J Gilbert

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: This paper describes a model of research and development (R&D) investment in which firms can choose any number of R&D projects that have independent and identical probabilities of success. The measure of R&D diversity is the number of projects that are undertaken by the industry. Absent spillovers or profits at risk from innovation, mergers often—but not always—decrease R&D diversity; however, the incremental effects decline rapidly with the number of industry rivals. Mergers can have significant adverse effects if the merging firms have large profits that are at risk from an innovation. A merger can promote investment in R&D and increase expected consumer surplus if discoveries have sufficiently large information spillovers.

Keywords: Industry; Innovation and Infrastructure; Competition; Innovation; Oligopoly; Mergers; Research and development; Applied Economics; Economics (search for similar items in EconPapers)
Date: 2019-05-01
New Economics Papers: this item is included in nep-cfn, nep-com, nep-cse, nep-ino, nep-mic and nep-ppm
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