EconPapers    
Economics at your fingertips  
 

Horizontal Mergers and Innovation in Concentrated Industries

Brett Hollenbeck

MPRA Paper from University Library of Munich, Germany

Abstract: The relationship between mergers and the long run rate of innovation is an open question in antitrust economics. I develop a framework to examine this in a dynamic oligopoly model with endogenous investment, entry, exit and horizontal mergers. Firms produce vertically differentiated goods and may merge with rival firms to gain market power and potentially increase the quality of their product. I extend previous work on dynamic mergers by allowing for products differentiated on quality with competition in prices and an endogenous long run rate of innovation. In equilibrium, horizontal mergers are almost entirely harmful to consumers in the short run, but the prospect of a buyout creates a powerful incentive for firms to preemptively enter the industry and invest to make themselves an attractive merger partner. The result is significantly higher rate of innovation with mergers than without and significantly higher long-run consumer welfare as well. Further results explore the circumstances under which this result is likely to hold. In order for the long run increase in innovation to outweigh the short run harm to consumers caused by mergers, entry costs must be low, entrants and incumbents must both have the ability to innovate rapidly, and the degree of horizontal product differentiation must be low. Alternatively, when mergers can generate innovation directly by allowing firms to combine their products they typically benefit consumers in both the short run and long run.

Keywords: Mergers; Antitrust; innovation; dynamic oligopoly (search for similar items in EconPapers)
JEL-codes: L13 L40 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
Date: 2018-12-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/90764/1/MPRA_paper_90764.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/95607/5/MPRA_paper_95607.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/95640/1/MPRA_paper_95640.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90764

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2019-11-13
Handle: RePEc:pra:mprapa:90764