We show that in the model of Federico et al. (2017) horizontal mergers may actually spur innovation by preventing duplication of R&D efforts. Federico et al. do not notice this result because they presume that the merged firm spreads its R&D expenditure evenly across the research units of the merging firms—a strategy which is optimal, however, only if the probability of failure is log-convex in the RD effort. The possibility that mergers spur innovation is more likely, the greater is the value of innovations and the less rapidly diminishing are the returns to R&D.
Vincenzo Denicolò, Michele Polo (2018). Duplicative research, mergers and innovation. ECONOMICS LETTERS, 166, 56-59 [10.1016/j.econlet.2018.02.021].
Duplicative research, mergers and innovation
Vincenzo Denicolò
;
2018
Abstract
We show that in the model of Federico et al. (2017) horizontal mergers may actually spur innovation by preventing duplication of R&D efforts. Federico et al. do not notice this result because they presume that the merged firm spreads its R&D expenditure evenly across the research units of the merging firms—a strategy which is optimal, however, only if the probability of failure is log-convex in the RD effort. The possibility that mergers spur innovation is more likely, the greater is the value of innovations and the less rapidly diminishing are the returns to R&D.| File | Dimensione | Formato | |
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