Mergers and Investments in New Products

Résumé

We investigate the impact of a horizontal merger between two competitors on their incentives to invest in R&D that generates new products. We show that a merger raises the incentives to innovate if and only if the merged entity’s incremental gain from a second innovation is greater than the individual profit of a firm when both firms innovate in the no-merger scenario. Applying this result to the Hotelling model, we find that a merger spurs innovation if the degree of product differentiation is not too high, and show that a merger can be beneficial to consumers.

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Codes JEL

Référence

Bruno Jullien et Yassine Lefouili, « Mergers and Investments in New Products », TSE Working Paper, n° 18-949, août 2018, révision août 2020.