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Mergers in Multidimensional Competition

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  • CARL DAVIDSON
  • BEN FERRETT

Abstract

Horizontal mergers are often driven by the desire to exploit R&D complementarities. We investigate the positive features of such a merger when oligopolists compete both in process R&D and on the product market. For a non‐trivial degree of R&D complementarity, we show that the merger has the following intuitively appealing features independently of the strategic variable in market competition: insiders benefit; outsiders are harmed; and insiders end up larger than outsiders. These results contrast with those of traditional models of merger to achieve market power alone, which are known to be counterintuitive and sensitive to the mode of product market competition.

Suggested Citation

  • Carl Davidson & Ben Ferrett, 2007. "Mergers in Multidimensional Competition," Economica, London School of Economics and Political Science, vol. 74(296), pages 695-712, November.
  • Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:695-712
    DOI: 10.1111/j.1468-0335.2007.00595.x
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    File URL: https://doi.org/10.1111/j.1468-0335.2007.00595.x
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    References listed on IDEAS

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    1. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
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    Cited by:

    1. Joanna Poyago-Theotoky & Ben Ferrett, "undated". "Horizontal Agreements and R&D Complementarities: Merger versus RJV," CRIEFF Discussion Papers 1201, Centre for Research into Industry, Enterprise, Finance and the Firm.
    2. Marc-Andreas Muendler, 2014. "Export or merge? Proximity vs. concentration in product space," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(1), pages 35-57, March.
    3. Matsushima Noriaki & Sato Yasuhiro & Yamamoto Kazuhiro, 2013. "Horizontal Mergers, Firm Heterogeneity, and R&D Investments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 959-990, August.
    4. Petrakis, Emmanuel & Manasakis, C. & Cabolis, C. & Moreno, Diego, 2016. "R&D investments fostering horizontal mergers," UC3M Working papers. Economics 23280, Universidad Carlos III de Madrid. Departamento de Economía.
    5. 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.
    6. Anna Rita Bennato & Stephen Davies & Franco Mariuzzo & Peter Ormosi, 2019. "Mergers and Innovation: Evidence from the Hard Disk Drive Market," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2018-04v3, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    7. Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
    8. Bourreau, Marc & Jullien, Bruno, 2018. "Mergers, investments and demand expansion," Economics Letters, Elsevier, vol. 167(C), pages 136-141.
    9. Cato, Susumu & Matsumura, Toshihiro, 2013. "Merger and entry-license tax," Economics Letters, Elsevier, vol. 119(1), pages 11-13.
    10. Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
    11. Marc-Andreas Muendler, 2014. "Export or merge? Proximity vs. concentration in product space," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(1), pages 35-57, March.
    12. James Foreman-Peck & Tom Nicholls, 2013. "SME takeovers as a contributor to regional productivity gaps," Small Business Economics, Springer, vol. 41(2), pages 359-378, August.
    13. Ben Ferrett & Joanna Poyago-Theotoky, 2016. "Horizontal Agreements and R&D Complementarities: Merger versus RJV," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 87-107, February.
    14. Foreman-Peck, James & Nicholls, Tom, 2008. "Peripherality and the Impact of SME Takeovers," Cardiff Economics Working Papers E2008/9, Cardiff University, Cardiff Business School, Economics Section, revised Jul 2012.
    15. Soo-Haeng Cho & Xin Wang, 2017. "Newsvendor Mergers," Management Science, INFORMS, vol. 63(2), pages 298-316, February.
    16. Miyagiwa, Kaz & Wan, Yunyun, 2016. "Innovation and the merger paradox," Economics Letters, Elsevier, vol. 147(C), pages 5-7.
    17. Bourreau, Marc & Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Demand-Enhancing Innovation," TSE Working Papers 18-907, Toulouse School of Economics (TSE), revised Dec 2019.
    18. Sebastian Linde & Ralph Siebert, 2016. "Do Mergers Among Multimarket Firms Create Value?," CESifo Working Paper Series 6139, CESifo.

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