The interactions of R&D investments and horizontal mergers Articles uri icon

publication date

  • July 2021

start page

  • 507

end page

  • 534

volume

  • 187

International Standard Serial Number (ISSN)

  • 0167-2681

Electronic International Standard Serial Number (EISSN)

  • 1879-1751

abstract

  • In a homogenous good industry in which firms choose their cost-reducing R&D investments and make merger proposals prior to competing ├á la Cournot, we identify conditions under which there are coalition-proof Nash equilibria involving horizontal mergers as well as non-integration. Mergers arise whenever the R&D technology is sufficiently effective. Moreover, if firms&;39# R&D investments are substitutes (complements) and the bargaining power is unevenly (evenly) distributed among merger participants, a merger is the unique coalition-proof Nash equilibrium. Antitrust policy guidelines are simple when the welfare standard is the consumer surplus and R&D investments are substitutes, but are more complex when the standard is total surplus and/or R&D investments are complements.

subjects

  • Economics

keywords

  • coalition-proof nash equilibrium; cost-reducing r&d; efficiency gains; horizontal mergers; merger surplus┬┐ distribution