IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v59y2018icp1-23.html
   My bibliography  Save this article

Horizontal mergers and product innovation

Author

Listed:
  • Federico, Giulio
  • Langus, Gregor
  • Valletti, Tommaso

Abstract

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the “price coordination” channel and the internalization of the “innovation externality”. We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

Suggested Citation

  • Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
  • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:1-23
    DOI: 10.1016/j.ijindorg.2018.03.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718718300213
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Leahy, Dermot & Neary, J. Peter, 2005. "Symmetric research joint ventures: Cooperative substitutes and complements," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 381-397, June.
    2. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
    3. 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.
    4. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    5. Nicholas Bloom & Mark Schankerman & John Van Reenen, 2013. "Identifying Technology Spillovers and Product Market Rivalry," Econometrica, Econometric Society, vol. 81(4), pages 1347-1393, July.
    6. 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.
    7. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2017. "A simple model of mergers and innovation," Economics Letters, Elsevier, vol. 157(C), pages 136-140.
    8. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 467-492.
    9. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    10. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    11. Massimo Motta & Emanuele Tarantino, 2017. "The effect of horizontal mergers, when firms compete in prices and investments," Economics Working Papers 1579, Department of Economics and Business, Universitat Pompeu Fabra.
    12. George Symeonidis, 2000. "Price and Nonprice Competition with Endogenous Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 53-83, March.
    13. repec:reg:rpubli:443 is not listed on IDEAS
    14. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters,in: Innovation Policy and the Economy, Volume 6, pages 159-215 National Bureau of Economic Research, Inc.
    15. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hollenbeck, Brett, 2018. "Horizontal Mergers and Innovation in Concentrated Industries," MPRA Paper 90764, University Library of Munich, Germany.
    2. Bourreau, Marc & Jullien, Bruno, 2018. "Mergers, investments and demand expansion," Economics Letters, Elsevier, vol. 167(C), pages 136-141.
    3. Nocke, Volker & Schutz, Nicolas, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," CEPR Discussion Papers 12905, C.E.P.R. Discussion Papers.
    4. Denicolò, Vincenzo & Polo, Michele, 2018. "Duplicative research, mergers and innovation," Economics Letters, Elsevier, vol. 166(C), pages 56-59.
    5. repec:eee:indorg:v:61:y:2018:i:c:p:413-438 is not listed on IDEAS
    6. Vincenzo Denicolò & Michele Polo, 2018. "The innovation theory of harm: an appraisal," IEFE Working Papers 103, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    7. Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Investments in New Products," TSE Working Papers 18-949, Toulouse School of Economics (TSE).
    8. repec:kap:revind:v:54:y:2019:i:4:d:10.1007_s11151-019-09688-4 is not listed on IDEAS
    9. Bourreau, Marc & Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Demand-Enhancing Innovation," TSE Working Papers 18-907, Toulouse School of Economics (TSE), revised Jul 2018.
    10. Haucap, Justus & Rasch, Alexander & Stiebale, Joel, 2019. "How mergers affect innovation: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 283-325.
    11. Giulio Federico & Fiona Scott Morton & Carl Shapiro, 2019. "Antitrust and Innovation: Welcoming and Protecting Disruption," NBER Chapters,in: Innovation Policy and the Economy, Volume 20 National Bureau of Economic Research, Inc.
    12. Johnson, Justin Pappas & Rhodes, Andrew, 2018. "Multiproduct Mergers and Quality Competition," TSE Working Papers 18-967, Toulouse School of Economics (TSE).
    13. Stöhr, Annika & Noskova, Victoriia & Kunz-Kaltenhäuser, Philipp & Gänßle, Sophia & Budzinski, Oliver, 2019. "Happily ever after? Vertical and horizontal mergers in the U.S. media industry," Ilmenau Economics Discussion Papers 126, Ilmenau University of Technology, Institute of Economics.
    14. repec:kap:revind:v:54:y:2019:i:3:d:10.1007_s11151-019-09679-5 is not listed on IDEAS
    15. repec:eee:ecolet:v:170:y:2018:i:c:p:109-112 is not listed on IDEAS

    More about this item

    Keywords

    Innovation; R&D; Mergers;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:1-23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.