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Organizational design of R&D after mergers and the role of budget responsibility

Listed author(s):
  • Jost, Peter-J.
  • van der Velden, Claus
Registered author(s):

    We consider an innovation contest between n firms in the presence of knowledge leakages from an innovating firm to its rivals. Our analysis focuses on the effects of these knowledge spillovers on merger activities between firms. In particular, we are interested in how different organizational designs of R&D after mergers affect profits of firms taking part in a merger and profits of their non-merging rivals. Three organizational arrangements are analyzed: first, a fusion of R&D departments in which the newly merged firm decides to close down one of the previously two R&D departments. Second, a profit center arrangement in which the newly merged firm keeps the old R&D departments as fully functional entities with a sovereign budget responsibility at each of the two departments. Third, a multisubsidiary organizational form in which the newly merged firm still keeps the old R&D departments but with restricted budget responsibility in the sense that they are forced to determine cooperatively their R&D budgets in order to maximize overall firm's profits. It turns out that the different organizational designs of R&D after the merger and the budget responsibilities have major impacts on merger outcomes.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148-6195(07)00044-6
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    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 60 (2008)
    Issue (Month): 5 ()
    Pages: 469-484

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    Handle: RePEc:eee:jebusi:v:60:y:2008:i:5:p:469-484
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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    1. Huck, Steffen & Konrad, Kai A. & Müller, Wieland, 2000. "Merger in contests," SFB 373 Discussion Papers 2000,3, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. Peter-J. Jost & Claus van der Velden, 2006. "Mergers in Patent Contest Models with Synergies and Spillovers," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 58(2), pages 157-179, April.
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