Mergers and demand-enhancing innovation

Marc Bourreau (1) , Bruno Jullien (2, 3) , Yassine Lefouili (2)

1 Télécom Paris
2 TSE-R - Toulouse School of Economics
3 CNRS - Centre National de la Recherche Scientifique

We study the impact of horizontal mergers on merging firms’ incentives to invest in demand-enhancing innovation. In our baseline model, we identify four effects of a symmetric merger on these incentives: the innovation diversion effect, the margin expansion effect, the demand expansion effect, and the per unit return to innovation effect. We offer succient conditions for a merger to reduce or raise merging firms’ incentives to innovate in the absence of spillovers and effciency gains in R&D, and find that a comparison between the innovation diversion and price diversion ratios is informative about the impact of a merger on innovation.

Mots clés: Horizontal Mergers; Innovation; Competition

Domaines: Economies et finances

Marc Bourreau, Bruno Jullien, Yassine Lefouili. Mergers and demand-enhancing innovation. 2024. ⟨hal-04548184⟩