Duplicative research, mergers and innovation

Mergers and Innovation Portfolios

“…This work, however, does not take into account the specificities of merger activity and cannot readily be used to develop an innovation theory of merger harm. In particular, as demonstrated in the recent papers of Federico, Langus and Valletti (2017, 2018), Motta and Tarantino (2017), Bourreau, Jullien, Lefoulli (2018), Denicolò and Polo (2018) and Gilbert (2019), understanding the impact of merger activity on innovation necessitates a separate analysis because a merger cannot be understood as a mere reduction in the number of competitors in the market, or of the degree of product differentiation, but as a transaction that results in that the partner firms coordinate their strategic decisions. Moreover, the literature on innovation and competition has been somewhat inconclusive about how competition affects investment due to the variety of models analysed, with specific functional forms and modes of competition (see Vives (2008) and Schmutzler (2013)).…”

“…We will evaluate mergers from a consumer welfare perspective but the analysis that follows can straightforwardly be generalized to the adoption of a social welfare standard. 16 The social planner picks a portfolio of investments x to maximize:…”

“…The fact that an individual firm ignores these externalities, which are negative and positive as indicated in equation (6), creates a source of inefficiency of the market equilibrium (unless they accidentally happen to cancel out). Second, the fact that the social planner cares about the consumer 16 EU and US competition authorities usually employ a consumer welfare standard to assess mergers.…”

Mergers, investments and demand expansion

“…Federico et al (2017a) argue in the context of a symmetric race for a new product that internalization by the merged firm of cannibalization of sales by simultaneous innovations leads to a reduction of innovation effort. 5 Denicolò and Polo (2017) show however that their conclusion holds only if the R&D technology exhibits sufficient decreasing returns to scale, and that the reverse holds otherwise. We identify a new effect that explains a positive impact of mergers on innovative investment.…”

Mergers of complements and entry in innovative industries

“…2 In these and other related models a merger can exert a negative e¤ect on consumer welfare driven by either higher prices or lower R&D of the merged …rms due to the internalization of business stealing e¤ects. 3 However, in other models, as those by Denicolò and Polo (2018), and , horizontal mergers of …rms producing substitute goods can spur innovation and bene…t consumers by preventing duplication of e¤orts or expanding demand. 4 I explore the alternative case of a merger between …rms producing complement goods and investing in R&D, a scenario that is traditionally associated with positive e¤ects on consumer welfare driven by lower prices and strengthened by higher R&D, due to the internalization of Cournot complementarities, except for cases where the merged entity adopts some form of mixed bundling to divert demand from rival producers with an ambiguous impact on consumer welfare (see Economides andSalop, 1992, andespecially Choi, 2008).…”