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Mergers and sequential innovation: evidence from patent citations

Jessica C. Stahl

No 2010-12, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: An extensive literature has investigated the effect of market structure on innovation. A persistent concern is that market structure may be endogenous to innovation. Firms may choose to merge so as to capture information spillovers or they may choose to merge so as to dampen competition in innovation. These two scenarios have very different welfare implications. This paper attempts to distinguish between the two scenarios empirically, looking at recent mergers among public companies in the United States. Using patent citation data, I find evidence that firms increase their rate of sequential innovation in the years preceding a merger, and reduce their rate of sequential innovation in the years following a merger. This suggests that mergers are motivated more by the desire to dampen competition than by the desire to capture information spillovers. I use citation-based measures of patent value to shed light on the welfare implications. The question is relevant for policy, as the FTC and DOJ frequently cite innovation as a reason for concern about a merger.

Keywords: technological innovations; Consolidation and merger of corporations (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-ipr, nep-pr~ and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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