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Downstream Mergers And Upstream Investment

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  • RAMON FAULÍ‐OLLER
  • JOEL SANDONÍS
  • JUANA SANTAMARÍA

Abstract

In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.
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Suggested Citation

  • Ramon Faulí‐Oller & Joel Sandonís & Juana Santamaría, 2011. "Downstream Mergers And Upstream Investment," Manchester School, University of Manchester, vol. 79(4), pages 884-898, July.
    • Handle: RePEc:bla:manchs:v:79:y:2011:i:4:p:884-898
    DOI: j.1467-9957.2010.02209.x
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    Cited by:

    1. Maria Alipranti & Chrysovalantou Miliou & Emmanuel Petrakis, 2014. "On Vertical Relations and Technology Adoption Timing," Working Papers 1502, University of Crete, Department of Economics.
    2. Chrysovalantou Milliou & Apostolis Pavlou, 2013. "Upstream Mergers, Downstream Competition, and R&D Investments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 787-809, December.
    3. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2015. "On vertical relations and the timing of technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 120(C), pages 117-129.
    4. Benoit Voudon, 2019. "Vertical Integration in the presence of a Cost-Reducing Technology," Trinity Economics Papers tep0919, Trinity College Dublin, Department of Economics.
    5. Qiu Zhao, 2019. "The Influence of Buyer Power on Supply Chain Pricing with Downstream Competition," Sustainability, MDPI, vol. 11(10), pages 1-19, May.
    6. Benoit Voudon, 2019. "Technology Adoption under Asymmetric Market Structure," Trinity Economics Papers tep0819, Trinity College Dublin, Department of Economics.
    7. Miguel González-Maestre & Lluís M. Granero, 2016. "Merger policy in innovative industries," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(3), pages 131-147, December.
    8. Chrysovalantou Milliou & Apostolis Pavlou, 2009. "Upstream Horizontal Mergers and Efficiency Gains," CESifo Working Paper Series 2748, CESifo.
    9. Maria Alipranti & Emmanuel Petrakis, 2022. "Upstream market structure and the timing of technology adoption," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1298-1310, July.
    10. Jean-Etienne de Bettignies & Bulat Gainullin & Hua Fang Liu & David T. Robinson, 2018. "The Effects of Downstream Competition on Upstream Innovation and Licensing," NBER Working Papers 25166, National Bureau of Economic Research, Inc.

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