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Competition, Mergers, and R&D Diversity

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  • Gilbert, Richard J

Abstract

This paper describes a model of research and development (R&D) investment in which firms can choose any number of R&D projects that have independent and identical probabilities of success. The measure of R&D diversity is the number of projects that are undertaken by the industry. Absent spillovers or profits at risk from innovation, mergers often—but not always—decrease R&D diversity; however, the incremental effects decline rapidly with the number of industry rivals. Mergers can have significant adverse effects if the merging firms have large profits that are at risk from an innovation. A merger can promote investment in R&D and increase expected consumer surplus if discoveries have sufficiently large information spillovers.

Suggested Citation

  • Gilbert, Richard J, 2019. "Competition, Mergers, and R&D Diversity," Department of Economics, Working Paper Series qt33t5v0fx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt33t5v0fx
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    References listed on IDEAS

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    1. Comanor, William S. & Scherer, F.M., 2013. "Mergers and innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 32(1), pages 106-113.
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    3. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Reprint of: Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 590-612.
    4. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
    5. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2017. "A simple model of mergers and innovation," Economics Letters, Elsevier, vol. 157(C), pages 136-140.
    6. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
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    8. Denicolò, Vincenzo & Polo, Michele, 2018. "Duplicative research, mergers and innovation," Economics Letters, Elsevier, vol. 166(C), pages 56-59.
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    Cited by:

    1. Brunner, Philipp & Letina, Igor & Schmutzler, Armin, 2024. "Research joint ventures: The role of financial constraints," European Economic Review, Elsevier, vol. 165(C).
    2. Mehdi Arzandeh & Hikmet Gunay, 2023. "Tariffs, R&D, and two merger policies," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 81-105, February.
    3. Esmée Dijk & José Luis Moraga-González & Evgenia Motchenkova, 2023. "Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios," Tinbergen Institute Discussion Papers 23-047/VII, Tinbergen Institute.
    4. Igor Letina & Armin Schmutzler & Regina Seibel, 2024. "Killer Acquisitions And Beyond: Policy Effects On Innovation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 591-622, May.
    5. Steven Callander & Niko Matouschek, 2022. "The Novelty of Innovation: Competition, Disruption, and Antitrust Policy," Management Science, INFORMS, vol. 68(1), pages 37-51, January.
    6. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Sep 2024.

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    Keywords

    Industry; Innovation and Infrastructure; Competition; Innovation; Oligopoly; Mergers; Research and development; Applied Economics; Economics;
    All these keywords.

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