Wednesday, November 28, 2018

A New model of mergers and innovation

Piuli Roy Chowdhury (Indira Gandhi Institute of Development Research; Institute of Economic Growth) offers A New model of mergers and innovation.

ABSTRACT: This paper reexamines the impact of merger on innovation. Unlike as in Federico et al (2017), it considers the scenario where merged firms combine their research labs. It shows that, in equilibrium, each firm chooses a higher R&D effort after the merger, while industry effort may rise or fall due to the merger. Furthermore, it shows that given a sufficient condition, profits of the merged firm falls and consumer surplus rises in the post merger scenario. These results are in sharp contrast to the findings of Federico et al (2017).

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