Working Paper: CEPR ID: DP14188
Authors: Jos Luis Moraga-Gonzlez; Evgenia Motchenkova; Saish Nevrekar
Abstract: This paper studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The investment of a firm in one project imposes both a negative business-stealing and a positive business-giving externality on the rival firms. We show that when the project that is relatively more profitable for the firms appropriates a larger (smaller) fraction of the social surplus, a merger increases (decreases) consumer welfare by reducing investment in the most profitable project and increasing investment in the alternative project. The innovation portfolio effects of mergers may dominate the usual market power effects.
Keywords: horizontal mergers; innovation portfolios; R&D contests
JEL Codes: L13; L22; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger (G34) | investment in less profitable project (G31) |
| merger (G34) | investment in more profitable project (G31) |
| merger (G34) | consumer welfare (D69) |
| investment in more profitable project (G31) | consumer welfare (D69) |
| investment in less profitable project (G31) | consumer welfare (D69) |
| merger (G34) | changes in investment allocations (G11) |
| changes in investment allocations (G11) | consumer welfare (D69) |