Discussion Paper Details

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Title: Mergers and Demand-Enhancing Innovation

Author(s): Marc Bourreau, Bruno Jullien and Yassine Lefouili

Publication Date: April 2021

Keyword(s): Competition, Horizontal mergers and Innovation

Programme Area(s): Industrial Organization

Abstract: We study the impact of horizontal mergers on merging firms' incentives to invest in demand-enhancing innovation. In our baseline model, we identify four effects of a symmetric merger on these incentives: the innovation diversion effect, the margin expansion effect, the demand expansion effect, and the per unit return to innovation effect. We offer sufficient conditions for a merger to reduce or raise merging firms' incentives to innovate in the absence of spillovers and efficiency gains in R&D, and find that a comparison between the innovation diversion and price diversion ratios is informative about the impact of a merger on innovation.

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Bibliographic Reference

Bourreau, M, Jullien, B and Lefouili, Y. 2021. 'Mergers and Demand-Enhancing Innovation'. London, Centre for Economic Policy Research.