Duplicative Research, Mergers and Innovation

13 Pages Posted: 19 Dec 2017

See all articles by Vincenzo Denicolò

Vincenzo Denicolò

University of Bologna

Michele Polo

Bocconi University - Department of Economics

Date Written: December 2017

Abstract

We show that in the model of Federico, Langus and Valletti (2017) [A simple model of mergers and innovation, Economics Letters, 157, 136-140] horizontal mergers may actually spur innovation by preventing duplication of R&D efforts. This possibility is more likely, the greater is the value of innovations, the less rapidly diminishing are the returns to R&D, and the more highly correlated are the R&D projects of different firms. Federico, Langus and Valletti (2017) do not obtain this result because they focus only on the case in which the merged firm spreads total R&D expenditure evenly across the individual research units of the merging firms -- a strategy which is optimal, however, only if the returns to R&D diminish sufficiently rapidly.

Keywords: Horizontal mergers, Innovation

Suggested Citation

Denicolo, Vincenzo and Polo, Michele, Duplicative Research, Mergers and Innovation (December 2017). CEPR Discussion Paper No. DP12511. Available at SSRN: https://ssrn.com/abstract=3089768

Vincenzo Denicolo (Contact Author)

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Michele Polo

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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