Downstream Mergers And Upstream Investment
AbstractIn 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2007-11.
Length: 18 pages
Date of creation: Apr 2007
Date of revision:
Publication status: Published by Ivie
downstream mergers; upstream innovation; competition;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-21 (All new papers)
- NEP-BEC-2007-04-21 (Business Economics)
- NEP-COM-2007-04-21 (Industrial Competition)
- NEP-CSE-2007-04-21 (Economics of Strategic Management)
- NEP-IND-2007-04-21 (Industrial Organization)
- NEP-MIC-2007-04-21 (Microeconomics)
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