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Mergers and Demand-Enhancing Innovation

Marc Bourreau (), Bruno Jullien () and Yassine Lefouili

No 18-907, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper investigates the impact of horizontal mergers on firms' incentives to invest in demand-enhancing innovation. In our baseline model, we identify three key effects of a merger on the merging firms' incentives to innovate: the margin expansion effect, the demand expansion effect, and the innovation diversion effect. The first effect is negative, while the second is positive and the third can be either positive or negative depending on the nature of the innovation. We show that the overall impact of a merger on innovation can be either positive or negative and provide sufficient conditions and specific models under which each of these two scenarios arises. Finally, we extend our model to incorporate spillovers and synergies in R&D.

Keywords: Horizontal Mergers; Innovation; Competition (search for similar items in EconPapers)
JEL-codes: D43 L13 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-mic and nep-tid
Date: 2018-03, Revised 2018-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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