Mergers and Demand-Enhancing Innovation


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 suffcient 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. 

If you are not a member of the CBE research group but would like to attend the seminar, please send an email to the seminar organizers Mateusz Mysliwski or Øyvind Thommasen.