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Mergers and Investments in New Products

Author

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  • Jullien, Bruno
  • Lefouili, Yassine

Abstract

We investigate the impact of a horizontal merger between two competitors on their incentives to invest in R&D that generates new products. We show that a merger raises the incentives to innovate if and only if the merged entity’s incremental gain from a second innovation is greater than the individual profit of a firm when both firms innovate in the no-merger scenario. Applying this result to the Hotelling model, we find that a merger spurs innovation if the degree of product differentiation is not too high, and show that a merger can be beneficial to consumers.

Suggested Citation

  • Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Investments in New Products," TSE Working Papers 18-949, Toulouse School of Economics (TSE), revised Aug 2020.
    • Handle: RePEc:tse:wpaper:32923
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    References listed on IDEAS

    as
    1. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, September.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Motta, Massimo & Tarantino, Emanuele, 2021. "The effect of horizontal mergers, when firms compete in prices and investments," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    4. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
    5. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
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    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Mar 2024.

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    More about this item

    Keywords

    Horizontal Mergers; Product Innovation; R&D Investments.;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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