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The Effect of a Merger on Investments

Massimo Motta () and Emanuele Tarantino

No 11550, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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)
Date: 2016-10
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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