A Simple Model of Mergers and Innovation
CESifo, Munich, 2017
CESifo Working Paper No. 6539
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.
Industrial Organisation
Empirical and Theoretical Methods