Downstream Mergers And Upstream Investment
In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.
|Date of creation:||Apr 2007|
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"Bilateral Monopolies and Incentives for Merger,"
RAND Journal of Economics,
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"Competitively Cost Advantageous Mergers and Monopolization,"
799, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- repec:ebl:ecbull:v:12:y:2005:i:9:p:1-5 is not listed on IDEAS
- Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 465-499.
- Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
- Farber, Stephen C, 1981. "Buyer Market Structure and R&D Effort: A Simultaneous Equations Model," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 336-45, August.
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