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The Effect of Mergers on the Incentive to Invest in Cost Reducing Innovations

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  • Robin Kleer

Abstract

Both mergers and innovation are central elements of a firm’s competitive strategy. However, model-theoretical analysis of the merger-innovation link is sparse. The aim of this paper is to analyze the impact of mergers on innovative activities and product market competition in the context of incremental process innovations. Inefficiencies due to organizational problems of mergers are accounted for. We show that optimal investment strategies depend on the resulting market structure and differ significantly from insider to outsider. In our linear model mergers turn out to increase social surplus.

Suggested Citation

  • Robin Kleer, 2006. "The Effect of Mergers on the Incentive to Invest in Cost Reducing Innovations," Working Papers 011, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:011_kleer
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    File URL: http://www.bgpe.de/texte/DP/011_kleer.pdf
    File Function: First version, 2006
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    Cited by:

    1. Brito Duarte & Catalão-Lopes Margarida, 2011. "Small Fish Become Big Fish: Mergers in Stackelberg Markets Revisited," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-20, May.

    More about this item

    Keywords

    Horizontal mergers; innovation; research joint venture; market structure;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • 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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