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Mergers in Multidimensional Competition

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  • CARL DAVIDSON
  • BEN FERRETT

Abstract

Horizontal mergers are often driven by the desire to exploit R&D complementarities. We investigate the positive features of such a merger when oligopolists compete both in process R&D and on the product market. For a non-trivial degree of R&D complementarity, we show that the merger has the following intuitively appealing features independently of the strategic variable in market competition: insiders benefit; outsiders are harmed; and insiders end up larger than outsiders. These results contrast with those of traditional models of merger to achieve market power alone, which are known to be counterintuitive and sensitive to the mode of product market competition. Copyright (c) The London School of Economics and Political Science 2007.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 296 (November)
Pages: 695-712

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Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:695-712

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Cited by:
  1. Noriaki Matsushima & Yasuhiro Sato & Kazuhiro Yamamoto, 2009. "Horizontal mergers, firm heterogeneity, and R&D investments," ISER Discussion Paper 0754, Institute of Social and Economic Research, Osaka University.
  2. Ben Ferrett & Joanna Poyago-Theotoky, 2012. "Horizontal Agreements and R&D Complementarities: Merger versus RJV," Working Paper Series 13_12, The Rimini Centre for Economic Analysis.
  3. Cato, Susumu & Matsumura, Toshihiro, 2013. "Merger and entry-license tax," Economics Letters, Elsevier, vol. 119(1), pages 11-13.
  4. James Foreman-Peck & Tom Nicholls, 2013. "SME takeovers as a contributor to regional productivity gaps," Small Business Economics, Springer, vol. 41(2), pages 359-378, August.
  5. Muendler, Marc-Andreas, 2014. "Export or Merge? Proximity vs. Concentration in Product Space," CAGE Online Working Paper Series 180, Competitive Advantage in the Global Economy (CAGE).
  6. Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
  7. Foreman-Peck, James & Nicholls, Tom, 2008. "Peripherality and the Impact of SME Takeovers," Cardiff Economics Working Papers E2008/9, Cardiff University, Cardiff Business School, Economics Section, revised Jul 2012.

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