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Merger and Innovation Incentives in a Differentiated Industry

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  • Dusanee Kesavayuth
  • Sang-Ho Lee
  • Vasileios Zikos

Abstract

This paper considers a duopoly with product differentiation and examines the interaction between merger and innovation incentives. The analysis reveals that a merger tends to discourage innovation, unless the investment cost is sufficiently low. This result holds irrespective of whether side payments between firms are allowed. When side payments between insiders within the merged firm are permitted, a standard result in the literature is reconfirmed, which suggests that a bilateral merger-to-monopoly is always profitable. When such side payments are not permitted, however, it is shown that a merger is not profitable when the efficiency of the new technology is relatively high and the investment cost is below a particular level.

Suggested Citation

  • Dusanee Kesavayuth & Sang-Ho Lee & Vasileios Zikos, 2018. "Merger and Innovation Incentives in a Differentiated Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 25(2), pages 207-221, May.
    • Handle: RePEc:taf:ijecbs:v:25:y:2018:i:2:p:207-221
    DOI: 10.1080/13571516.2017.1389818
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    Cited by:

    1. Leal, Mariel & Garcia, Arturo & Lee, Sang-Ho, 2020. "Strategic CSR and merger in multiproduct mixed markets with state-holding corporation," MPRA Paper 102351, University Library of Munich, Germany, revised 10 Aug 2020.
    2. Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    3. Sang‐Ho Lee & Timur K. Muminov, 2021. "R&D Information sharing in a mixed duopoly and incentive subsidy for research joint venture competition," Bulletin of Economic Research, Wiley Blackwell, vol. 73(2), pages 154-170, April.
    4. Lee, Sang-Ho & Muminov, Timur K. & Tomaru, Yoshihiro, 2017. "Partial Privatization And Subsidization In A Mixed Duopoly: R&D Versus Output Subsidies," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(2), pages 163-177, December.
    5. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.
    6. Lee, Sang-Ho & Muminov, Timur, 2020. "R&D Spillovers and Welfare Effect of Privatization with an R&D Subsidy," MPRA Paper 99937, University Library of Munich, Germany.
    7. Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz, Felix, 2020. "Mergers as an environmental ally: Socially excessive and insufficient merger approvals," Working Papers 2020-1, School of Economic Sciences, Washington State University.
    8. Leal, Mariel & García, Arturo & Lee, Sang-Ho, 2021. "Strategic CSR and merger decisions in multiproduct mixed markets with state-holding corporation," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 319-333.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • 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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