Mergers and Investments in New Products

Abstract

This paper examines how horizontal mergers affect firms’ incentives to invest in R&D leading to the development of new products. We characterize the impact of a merger to monopoly and a 3-to-2 merger on equilibrium innovation efforts and consumer surplus, absent efficiency gains and spillovers. We show that a 3-to-2 merger directly alters the outsider’s innovation incentives by shifting its best-response function upward, and we analyze how this mechanism affects merger outcomes for innovation and consumer surplus. Finally, we examine how efficiency gains and remedies modify post-merger innovation efforts.

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Replaced by

Anna D’Annunzio, Yassine Lefouili, Bruno Jullien, and Leonardo Madio, “Mergers and Investments in New Products”, International Journal of Industrial Organization, vol. 108, n. 103291, October 2026.

Reference

Anna D’Annunzio, Bruno Jullien, Yassine Lefouili, and Leonardo Madio, “Mergers and Investments in New Products”, TSE Working Paper, n. 18-949, August 2018, revised March 2026.