City Research Online

Abstract

We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: it may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes.

Publication Type:	Article
Additional Information:	Copyright American Economic Association; reproduced with permission
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments:	School of Policy & Global Affairs School of Policy & Global Affairs > Department of Economics
SWORD Depositor:	Symplectic Administrator

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