DP16031 Mergers and Demand-Enhancing Innovation
|Author(s):||Marc Bourreau, Bruno Jullien, Yassine Lefouili|
|Publication Date:||April 2021|
|Keyword(s):||Competition, Horizontal mergers, Innovation|
|JEL(s):||D43, L13, L40|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16031|
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.