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The Effect of Mergers on Innovation

Author

Listed:
  • Kaustav Das
  • Tatiana Mayskaya
  • Arina Nikandrova

Abstract

We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: It may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes.

Suggested Citation

  • Kaustav Das & Tatiana Mayskaya & Arina Nikandrova, 2026. "The Effect of Mergers on Innovation," American Economic Journal: Microeconomics, American Economic Association, vol. 18(2), pages 348-394, May.
    • Handle: RePEc:aea:aejmic:v:18:y:2026:i:2:p:348-94
    DOI: 10.1257/mic.20240062
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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