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The interactions of R&D investments and horizontal mergers

Author

Listed:
  • Cabolis, C.
  • Manasakis, C.
  • Moreno, D.
  • Petrakis, E.

Abstract

In a homogenous good industry in which firms choose their cost-reducing R&D investments and make merger proposals prior to competing à la Cournot, we identify conditions under which there are coalition-proof Nash equilibria involving horizontal mergers as well as non-integration. Mergers arise whenever the R&D technology is sufficiently effective. Moreover, if firms’ R&D investments are substitutes (complements) and the bargaining power is unevenly (evenly) distributed among merger participants, a merger is the unique coalition-proof Nash equilibrium. Antitrust policy guidelines are simple when the welfare standard is the consumer surplus and R&D investments are substitutes, but are more complex when the standard is total surplus and/or R&D investments are complements.

Suggested Citation

  • Cabolis, C. & Manasakis, C. & Moreno, D. & Petrakis, E., 2021. "The interactions of R&D investments and horizontal mergers," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 507-534.
    • Handle: RePEc:eee:jeborg:v:187:y:2021:i:c:p:507-534
    DOI: 10.1016/j.jebo.2021.03.037
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    More about this item

    Keywords

    Horizontal mergers; Cost-reducing R&D; Merger Surplus’ distribution; Efficiency gains; Coalition-proof nash equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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