Mergers and sequential innovation: evidence from patent citations
AbstractAn extensive literature has investigated the effect of market structure on innovation. A persistent concern is that market structure may be endogenous to innovation. Firms may choose to merge so as to capture information spillovers or they may choose to merge so as to dampen competition in innovation. These two scenarios have very different welfare implications. This paper attempts to distinguish between the two scenarios empirically, looking at recent mergers among public companies in the United States. Using patent citation data, I find evidence that firms increase their rate of sequential innovation in the years preceding a merger, and reduce their rate of sequential innovation in the years following a merger. This suggests that mergers are motivated more by the desire to dampen competition than by the desire to capture information spillovers. I use citation-based measures of patent value to shed light on the welfare implications. The question is relevant for policy, as the FTC and DOJ frequently cite innovation as a reason for concern about a merger.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-12.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-COM-2010-03-20 (Industrial Competition)
- NEP-IND-2010-03-20 (Industrial Organization)
- NEP-INO-2010-03-20 (Innovation)
- NEP-IPR-2010-03-20 (Intellectual Property Rights)
- NEP-TID-2010-03-20 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sharon Belenzon, 2006.
"Knowledge Flow and Sequential Innovation: Implications for Technology Diffusion, R&D and Market Value,"
Economics Series Working Papers
259, University of Oxford, Department of Economics.
- Sharon Belenzon, 2006. "Knowledge Flow and Sequential Innovation: Implications for Technology Diffusion, R&D and Market Value," CEP Discussion Papers dp0721, Centre for Economic Performance, LSE.
- Lunn, John E, 1986. "An Empirical Analysis of Process and Product Patenting: A Simultaneous Equation Framework," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 319-30, March.
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