Abstract
We study the impact of horizontal mergers on the incentives of merging firms to invest in incremental innovation. We provide a decomposition of this impact that clarifies the various forces at work and the differences between demand-enhancing and cost-reducing innovation. Moreover, we derive sufficient conditions for a merger to either reduce or raise the merging firms’ incentives to innovate, and show that the comparison of the price diversion ratio and the innovation diversion ratio can help screen mergers. We also uncover a useful connection between the level of production synergies induced by a merger and its impact on innovation.
Keywords
Horizontal Mergers; Innovation; Competition;
JEL codes
- D43: Oligopoly and Other Forms of Market Imperfection
- L13: Oligopoly and Other Imperfect Markets
- L40: General
Reference
Marc Bourreau, Bruno Jullien, and Yassine Lefouili, “Horizontal Mergers and Incremental Innovation”, The RAND Journal of Economics, July 2024, forthcoming.
See also
Published in
The RAND Journal of Economics, July 2024, forthcoming