We investigate the impact of a horizontal merger between two competitors on their incentives to invest in R&D that generates new products. We show that a merger raises the incentives to innovate if and only if the merged entity’s incremental gain from a second innovation is greater than the individual profit of a firm when both firms innovate in the no-merger scenario. Applying this result to the Hotelling model, we find that a merger spurs innovation if the degree of product differentiation is not too high, and show that a merger can be beneficial to consumers.
Horizontal Mergers, Product Innovation, R&D Investments.;
- K21: Antitrust Law
- L13: Oligopoly and Other Imperfect Markets
- L40: General
TSE Working Paper, n. 18-949, August 2018, revised August 2020