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How Mergers A ffect Innovation: Theory and Evidence

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  • Stiebale, Joel
  • Haucap, Justus

Abstract

This papers analyses how horizontal mergers affect innovation activities of the merged entity and its non-merging competitors. We develop an oligopoly model with heterogeneous firms to derive empirically testable implications. Our model predicts that a merger is more likely to be profitable in an innovation intensive industry. For a high degree of firm heterogeneity a merger reduces innovation in both the merged entity and in non-merging competitors in an industry with high R\&D intensity. Using data on horizontal mergers among pharmaceutical firms in Europe, we find that our econometric results are consistent with many predictions of the theoretical model. Our main result is that after a merger patenting and R\&D of the merged entity and its non-merging rivals declines substantially. The results are robust towards alternative specifications and using an instrumental variable strategy.

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  • Stiebale, Joel & Haucap, Justus, 2013. "How Mergers A ffect Innovation: Theory and Evidence," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79831, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79831
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    1. repec:nbr:nberch:14261 is not listed on IDEAS
    2. Giulio Federico & Fiona Scott Morton & Carl Shapiro, 2019. "Antitrust and Innovation: Welcoming and Protecting Disruption," NBER Chapters,in: Innovation Policy and the Economy, Volume 20 National Bureau of Economic Research, Inc.
    3. repec:eee:indorg:v:63:y:2019:i:c:p:583-614 is not listed on IDEAS
    4. García-Vega, María & Hofmann, Patricia & Kneller, Richard, 2019. "Multinationals and the globalization of R&D," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 583-614.

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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