The Effect of a Merger on Investments
Massimo Motta () and
No 11550, CEPR Discussion Papers from C.E.P.R. Discussion Papers
It has been suggested that mergers, by increasing profitability, will also result in higher investments. To deal with this claim, we first study a general model with simultaneous cost-reducing investments and price choices. Absent scope economies, the merger is anti-competitive: it lowers both total output and investment. With sequential choices, we provide a sufficient condition in a general model for the merger to be anti-competitive. The results are confirmed in a standard Shubik-Levitan parametric model. Only if the merger entails sufficient scope economies, will it be pro-competitive. We also show that a Network Sharing Agreement (by which parties set their investment cooperatively) is preferable to a merger. Finally, we identify a class of models where the same qualitative results extend to quality-enhancing investments.
Keywords: Horizontal mergers; innovation; Investments; Network-sharing Agreements (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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