Competition, Mergers and R&D Diversity

21 Pages Posted: 19 Jun 2018 Last revised: 14 Oct 2018

See all articles by Richard Gilbert

Richard Gilbert

University of California, Berkeley

Date Written: October 8, 2018

Abstract

This paper describes a model of research and development investment in which firms can choose any number of R&D projects that have independent and identical probabilities of success. The measure of R&D diversity is the number of projects undertaken by the industry. Absent spillovers or profits at risk from innovation, mergers generally (but not always) decrease R&D diversity, but the incremental effects decline rapidly with the number of industry rivals. Mergers can have significant adverse effects if the merging firms have large profits that are at risk from an innovation. A merger can promote investment in R&D and increase expected consumer surplus if discoveries have sufficiently large information spillovers.

Keywords: Innovation, Competition, Mergers

JEL Classification: L40, L13

Suggested Citation

Gilbert, Richard, Competition, Mergers and R&D Diversity (October 8, 2018). Available at SSRN: https://ssrn.com/abstract=3190478 or http://dx.doi.org/10.2139/ssrn.3190478

Richard Gilbert (Contact Author)

University of California, Berkeley ( email )

Department of Economics
530 Evans Hall #3880
Berkeley, CA 94720
United States
510 339 6493 (Phone)

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