Working Paper: CEPR ID: DP12511
Authors: Vincenzo Denicol; Michele Polo
Abstract: We show that in the model of Federico, Langus and Valletti (2017) [A simple model of mergers and innovation, Economics Letters, 157, 136-140] horizontal mergers may actually spur innovation by preventing duplication of R&D efforts. This possibility is more likely, the greater is the value of innovations, the less rapidly diminishing are the returns to R&D, and the more highly correlated are the R&D projects of different firms. Federico, Langus and Valletti (2017) do not obtain this result because they focus only on the case in which the merged firm spreads total R&D expenditure evenly across the individual research units of the merging firms -- a strategy which is optimal, however, only if the returns to R&D diminish sufficiently rapidly.
Keywords: horizontal mergers; innovation
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mergers (G34) | innovation (O35) |
| Mergers (G34) | reallocation of R&D expenditures (O32) |
| reallocation of R&D expenditures (O32) | innovation (O35) |
| value of innovation (O35) | probability of innovation (O35) |
| Mergers (G34) | R&D investments in some units (O32) |
| Mergers (G34) | R&D investments in others (O36) |
| Mergers (G34) | overall innovation likelihood (O36) |
| value of innovation (O35) | success of innovation (O35) |