Merger and Innovation Incentives in a Differentiated Industry

Dusanee Kesavayuth, Sang-Ho Lee and Vasileios Zikos

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we consider a duopoly with product differentiation and examine the interaction between merger and innovation incentives. The analysis reveals that a merger tends to discourage innovation, unless the investment cost is sufficiently low. This result holds whether or not side payments between firms are allowed. When side payments are permitted, a bilateral merger-to-monopoly is always profitable, a standard result in the literature. When side payments are not permitted, however, we show that a merger is not profitable when the efficiency of the new technology is relatively high and the investment cost is below a particular level.

Keywords: Merger; R&D; innovation; differentiated products (search for similar items in EconPapers)
JEL-codes: D21 L13 L41 O31 (search for similar items in EconPapers)
Date: 2017-06-21
New Economics Papers: this item is included in nep-bec, nep-cdm, nep-com, nep-ind, nep-ino, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://mpra.ub.uni-muenchen.de/79821/1/MPRA_paper_79821.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/85737/1/MPRA_paper_79821.pdf revised version (application/pdf)

Related works:
Journal Article: Merger and Innovation Incentives in a Differentiated Industry (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:79821

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