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Mergers and innovation sharing

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  • Denicolò, Vincenzo
  • Polo, Michele

Abstract

We extend the classic model of Perry and Porter (1985) to allow for cost-reducing innovations and in this setting we analyse the competitive effects of horizontal mergers. The analysis focuses on the innovation-sharing mechanism, whereby the merging firms share the results of their research, enlarging the base of application of inventions and hence the incentive to innovate. We show that if marginal costs are increasing, the innovation-sharing mechanism may more than offset the contractionary output effect that operates for any given state of the technology, making horizontal mergers pro-competitive even in the absence of synergies in production and research.

Suggested Citation

  • Denicolò, Vincenzo & Polo, Michele, 2021. "Mergers and innovation sharing," Economics Letters, Elsevier, vol. 202(C).
    • Handle: RePEc:eee:ecolet:v:202:y:2021:i:c:s016517652100118x
    DOI: 10.1016/j.econlet.2021.109841
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    References listed on IDEAS

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    1. Arijit Mukherjee & Prabal Roy chowdhury, 2013. "Innovation and social desirability of merger," Economics Bulletin, AccessEcon, vol. 33(1), pages 348-360.
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    8. Motta, Massimo & Tarantino, Emanuele, 2021. "The effect of horizontal mergers, when firms compete in prices and investments," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    9. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
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    14. repec:wly:soecon:v:83:1:y:2016:p:202-235 is not listed on IDEAS
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    Cited by:

    1. Mukherjee, Arijit & Ray, Achintya, 2024. "Pro-competitive merger under R&D revisited," Economics Letters, Elsevier, vol. 239(C).
    2. Lefouili, Yassine & Madio, Leonardo, 2025. "Mergers and Investments: Where Do We Stand?," TSE Working Papers 25-1617, Toulouse School of Economics (TSE).
    3. Mukherjee, Arijit, 2023. "Merger and product innovation under cross ownership and cooperative R&D," Economics Letters, Elsevier, vol. 233(C).

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