We study the impact of horizontal mergers on merging firms’ incentives to invest in demand-enhancing innovation. In our baseline model, we identify four e¤ects of a symmetric merger on these incentives: the innovation diversion e¤ect, the margin expansion e¤ect, the demand expansion e¤ect, and the per unit return to innovation e¤ect. We o¤er su¢cient conditions for a merger to reduce or raise merging firms’ incentives to innovate in the absence of spillovers and e¢ciency gains in R&D, and find that a comparison between the innovation diversion and price diversion ratios is informative about the impact of a merger on innovation.
Horizontal Mergers; Innovation; Competition;
- D43: Oligopoly and Other Forms of Market Imperfection
- L13: Oligopoly and Other Imperfect Markets
- L40: General
TSE Working Paper, n. 18-907, March 2018, revised April 2021