Mergers, investments and demand expansion

Bourreau, Marc; Jullien, Bruno

doi:10.1016/j.econlet.2018.03.009

Cited by 36 publications

(37 citation statements)

References 10 publications

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“…11 While both Federico et al (2017) and Motta and Tarantino (2017) have quite strong implications for the analysis of the effects of horizontal mergers on incentives to innovate, their modelling approaches have been criticized by others. Denicolo and Polo (2018), Bourreau and Jullien (2018) as well as Jullien and Lefouili (2018) argue that these economic analyses rely on restrictive assumptions and thus do not support the view that horizontal mergers always reduce incentives to invest and innovate. These authors conclude that given the uncertainty of the direction of the effect, merger control should bear in mind that depending on the facts the case the effect of the merger can go either way.…”

Section: Literature Reviewmentioning

confidence: 99%

Horizontal Cooperation on Investment: Evidence From Mobile Network Sharing

Cojoc¹,

Ivaldi

Maier-Rigaud

et al. 2020

SSRN Journal

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We present a structural model to investigate the effects of horizontal cooperation on investment in the context of telecommunication networks. More specifically, we estimate the effect of network sharing in the mobile telecommunications industry on prices, network quality and consumer welfare. The presented framework allows estimating the effects of different types of sharing agreements including common ownership of shared assets in a joint venture company or collaboration via geographical separation (geo-split principle). The proposed identification strategy relies on differences in the costs of network deployment of shared versus non-shared network infrastructure, with different costs affecting operators' optimal choice of price and network quality. We apply the structural model to estimate the effects of a network sharing agreement in the Czech Republic, using a combination of unique datasets on prices, network quality measured as average download speed and operator's costs of network deployment. The results of our model indicate that horizontal cooperation on investments may be beneficial for consumers. Specifically, the network sharing agreement under study generated cost savings for the sharing parties, which were passed-on to consumers in the form of lower prices and higher average download speed. Our findings are of relevance to the assessment of network sharing agreements, which, considering the substantial investment cost associated with the 5G technology, are likely to play an even greater role in the telecommunications industry in the future. The findings are also of relevance to the general literature on horizontal cooperation on investments.

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Section: Literature Reviewmentioning

confidence: 99%

Horizontal Cooperation on Investment: Evidence From Mobile Network Sharing

Cojoc¹,

Ivaldi

Maier-Rigaud

et al. 2020

SSRN Journal

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“…The other view is that, due to higher margins and e¢ ciency gains, a merger would enhance investment in the deployment of the most advanced technology. Bourreau and Jullien (2017) contribute to this debate by considering the e¤ect of a merger on the incentives of …rms to invest in "coverage"for a new technology, where coverage determines which part of the population can access the service o¤ered by a …rm. In their two-…rm setup, di¤erent levels of coverage are chosen by the …rms.…”

Section: Demand Expansion E¤ect and Margin Expansion E¤ectmentioning

confidence: 99%

Horizontal Mergers and Innovation‡

Lefouili¹

2018

Journal of Competition Law &Amp; Economics

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This paper discusses the e¤ects of horizontal mergers on innovation. We rely on the existing academic literature and our own research work to present the various positive and negative e¤ects of mergers on innovation. Our analysis shows that the overall impact of a merger on innovation may be either positive or negative and sheds light on the circumstances under which each of these scenarios is likely to arise. We derive a number of policy implications regarding the way innovation e¤ects should be handled by competition authorities in merger control and highlight the di¤erences with the analysis of price e¤ects.

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“…This raises the return on investment in coverage expansion and, therefore, leads to a higher total coverage. The paper by Bourreau and Jullien (2017) is admittedly speci…c to technology adoption, but it brings two key insights. First, it shows that for some types of innovation, a merger may indeed lead to an increase in the level of investment even in the absence of spillovers and e¢ ciencies.…”

Section: Demand Expansion E¤ect and Margin Expansion E¤ectmentioning

confidence: 99%

“…Prices are the same for the contestable demand and the captive demand, and re ‡ect the di¤erences in coverage: the …rm with the larger coverage chooses a higher price than its competitor (because some of its demand is captive). Bourreau and Jullien (2017) then compare the outcome under competition with the outcome when the two …rms merge, and conclude that the merged entity will expand total coverage and reduce the contestable demand. The e¤ect of market expansion can be so strong that under some parameter values it can outweigh the e¤ect of the merger on prices, leading to a positive e¤ect of the merger on total welfare and consumer surplus.…”

Section: Demand Expansion E¤ect and Margin Expansion E¤ectmentioning

confidence: 99%