A Simple Model of Mergers and Innovation
15 Pages Posted: 21 Jul 2017
Date Written: June 29, 2017
We analyze the impact of a merger on firms’ incentives to innovate. We show that the merging parties always decrease their innovation efforts post-merger while the outsiders to the merger respond by increasing their effort. A merger tends to reduce overall innovation. Consumers are always worse off after a merger. Our model calls into question the applicability of the “inverted-U” relationship between innovation and competition to a merger setting.
Keywords: innovation, R&D, mergers
JEL Classification: D430, G340, L400, O300
Suggested Citation: Suggested Citation