Innovation and competition: The role of the product market

Marshall, Guillermo; Parra, Álvaro

doi:10.1016/j.ijindorg.2019.04.001

Cited by 85 publications

(41 citation statements)

References 25 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We find the equilibrium by an iterative Newton search method. 16 We also check that, in equilibrium, the merger is profitable. 17 Figure 1 illustrates the equilibrium impact of a 4-to-3 merger on the innovation probabilities of each of the two products of the merged firm ("insider") and each of the two non-merging parties ("outsider").…”

Section: Equilibrium Impact Of a Merger On Innovation Effortsmentioning

confidence: 99%

“…They also find that in the linear quadratic model of R&D joint ventures introduced by d' Aspremont and Jacquemin (1988) the comparison between a symmetric non-cooperative equilibrium and an asymmetric cooperative outcome is only relevant for a narrow range of parameters. 16 We have ran the search algorithm with different starting values to check that it always converges to the same equilibrium effort vector. We are therefore reasonably confident that there is a unique equilibrium for each set of parameters that we consider.…”

Section: Observationmentioning

confidence: 99%

See 1 more Smart Citation

Horizontal mergers and product innovation

Federico

Langus

Valletti

2018

International Journal of Industrial Organization

View full text Add to dashboard Cite

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the "price coordination" channel and the internalization of the "innovation externality". We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

show abstract

Section: Equilibrium Impact Of a Merger On Innovation Effortsmentioning

confidence: 99%

Section: Observationmentioning

confidence: 99%

Horizontal mergers and product innovation

Federico

Langus

Valletti

2018

International Journal of Industrial Organization

View full text Add to dashboard Cite

show abstract

“…Goettler and Gordon (2014) find a similar result. Marshall and Parra (2016) extend patent race models to show what features of product market competition lead to positive and negative relationships between competition and innovation. Segal and Whinston (2007) contribute to this literature by showing in a general model that antitrust policy that protects entrant profits leads to higher innovation.…”

Section: Introductionmentioning

confidence: 98%

Horizontal mergers and innovation in concentrated industries

Hollenbeck

2019

Quant Mark Econ

View full text Add to dashboard Cite

The relationship between mergers and the long run rate of innovation is an open question in antitrust economics. I develop a framework to examine this in a dynamic oligopoly model with endogenous investment, entry, exit and horizontal mergers. Firms produce vertically differentiated goods and may merge with rival firms to gain market power and potentially increase the quality of their product. I extend previous work on dynamic mergers by allowing for products differentiated on quality with competition in prices and an endogenous long run rate of innovation. In equilibrium, horizontal mergers are almost entirely harmful to consumers in the short run, but the prospect of a buyout creates a powerful incentive for firms to preemptively enter the industry and invest to make themselves an attractive merger partner. The result is significantly higher rate of innovation with mergers than without and significantly higher long-run consumer welfare as well. Further results explore the circumstances under which this result is likely to hold. In order for the long run increase in innovation to outweigh the short run harm to consumers caused by mergers, entry costs must be low, entrants and incumbents must both have the ability to innovate rapidly, and the degree of horizontal product differentiation must be low. Alternatively, when mergers can generate innovation directly by allowing firms to combine their products they typically benefit consumers in both the short run and long run.

show abstract

“…The study of R&D incentives in the context of an infinite sequence of innovations has focused on stationary environments. Stationarity has been attained by assuming an exogenous arrival of innovations (Hopenhayn, Llobet, and Mitchell, ); by restricting the policy space to patents of infinite length (O'Donoghue, ; Acemoglu and Cao, ; Marshall and Parra, ) or to patents that terminate stochastically in a Poisson fashion (Acemoglu and Akcigit, ; Kiedaisch, ); by restricting investment in R&D to only potential followers (Hunt, ; Segal and Whinston, ); or by restricting R&D to only market leaders (Horowitz and Lai, ). Although these studies have emphasized the role of the replacement effect on the firms' R&D incentives, the standard stationarity assumption shuts down the dynamic incentives that exist throughout the patent life.…”

Section: Introductionmentioning

confidence: 99%

Sequential innovation, patent policy, and the dynamics of the replacement effect

Parra

2019

The RAND J of Economics

Self Cite

View full text Add to dashboard Cite

I study how patent policy-characterized by patent length and forward protection-affects Research and Development (R&D) dynamics, leadership persistence, and market structure. Firms' R&D investments increase as the patent's expiration date approaches. Through forward protection, followers internalize the leader's replacement effect. In protective systems, this internalization is substantial, reversing Arrow's traditional result: followers invest less than leaders at every moment of the patent's life. I study the policy that maximizes innovative activity. Overly protective policies decrease innovation pace through two mechanisms: delaying firms' investments toward the end of the patent's life and decreasing the number of firms performing R&D.

show abstract

Innovation and competition: The role of the product market

Cited by 85 publications

References 25 publications

Horizontal mergers and product innovation

Horizontal mergers and product innovation

Horizontal mergers and innovation in concentrated industries

Sequential innovation, patent policy, and the dynamics of the replacement effect

Contact Info

Product

Resources

About