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Merger and Innovation Incentives in a Differentiated Industry

Listed author(s):
  • Kesavayuth, Dusanee
  • Lee, Sang-Ho
  • Zikos, Vasileios

In this paper, we consider a duopoly with product differentiation and examine the interaction between merger and innovation incentives. The analysis reveals that a merger tends to discourage innovation, unless the investment cost is sufficiently low. This result holds whether or not side payments between firms are allowed. When side payments are permitted, a bilateral merger-to-monopoly is always profitable, a standard result in the literature. When side payments are not permitted, however, we show that a merger is not profitable when the efficiency of the new technology is relatively high and the investment cost is below a particular level.

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File URL: https://mpra.ub.uni-muenchen.de/79821/1/MPRA_paper_79821.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 79821.

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Date of creation: 21 Jun 2017
Handle: RePEc:pra:mprapa:79821
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