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Duplicative research, mergers and innovation

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  • Denicolò, Vincenzo
  • Polo, Michele

Abstract

We show that in the model of Federico et al. (2017) horizontal mergers may actually spur innovation by preventing duplication of R&D efforts. Federico et al. do not notice this result because they presume that the merged firm spreads its R&D expenditure evenly across the research units of the merging firms—a strategy which is optimal, however, only if the probability of failure is log-convex in the RD effort. The possibility that mergers spur innovation is more likely, the greater is the value of innovations and the less rapidly diminishing are the returns to R&D.

Suggested Citation

  • Denicolò, Vincenzo & Polo, Michele, 2018. "Duplicative research, mergers and innovation," Economics Letters, Elsevier, vol. 166(C), pages 56-59.
    • Handle: RePEc:eee:ecolet:v:166:y:2018:i:c:p:56-59
    DOI: 10.1016/j.econlet.2018.02.021
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    References listed on IDEAS

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    1. W. Salant, Stephen & Shaffer, Greg, 1998. "Optimal asymmetric strategies in research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 195-208, March.
    2. Bourreau, Marc & Jullien, Bruno, 2018. "Mergers, investments and demand expansion," Economics Letters, Elsevier, vol. 167(C), pages 136-141.
    3. repec:fth:harver:1473 is not listed on IDEAS
    4. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343, National Bureau of Economic Research, Inc.
    5. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2017. "A simple model of mergers and innovation," Economics Letters, Elsevier, vol. 157(C), pages 136-140.
    6. Vincenzo Denicolò, 2007. "Do patents over-compensate innovators? [‘State-dependent intellectual property rights policy’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(52), pages 680-729.
    7. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
    8. Josh Lerner & Scott Stern, 2012. "The Rate and Direction of Inventive Activity Revisited," NBER Books, National Bureau of Economic Research, Inc, number lern11-1, March.
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    More about this item

    Keywords

    Horizontal mergers; Innovation; R&D investment;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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