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Mergers of complements and entry in innovative industries

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  • Etro, Federico

Abstract

I study a merger between producers of complement inputs facing potential entry, with investment by the incumbents in deterministic cost reduction and by the entrants in probabilistic innovation, and then competition in prices. The merger solves Cournot complementarity problems in investment and pricing, which is what makes it profitable but also potentially anti-competitive. When the demand is inelastic the merger harms consumers by reducing R&D of the entrants if the incumbents are efficient enough (always when bundling is adopted). Instead, with a demand elastic enough, the merger increases consumer surplus (even with bundling).

Suggested Citation

  • Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
  • Handle: RePEc:eee:indorg:v:65:y:2019:i:c:p:302-326
    DOI: 10.1016/j.ijindorg.2019.04.004
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    Cited by:

    1. Axel Gautier & Joe Lamesch, 2020. "Mergers in the Digital Economy," CESifo Working Paper Series 8056, CESifo Group Munich.

    More about this item

    Keywords

    Mergers; R&D; Cournot complementarity; Bundling; Antitrust in high-tech industries;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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