Mergers and innovation portfolios

This article studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The investment of a firm in one project imposes both a negative business‐stealing and a positive business‐giving externality on the rival firms. We show that wh...

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Bibliographic Details
Published in:	The Rand journal of economics Vol. 53; no. 4; pp. 641 - 677
Main Authors:	Moraga‐González, José Luis, Motchenkova, Evgenia, Nevrekar, Saish
Format:	Journal Article
Language:	English
Published:	Santa Monica Rand Corporation 01-12-2022
Subjects:	Companies innovation portfolios Innovations Investments Mergers Portfolios Profitability R&D contests Theft Welfare
Online Access:	Get full text
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Summary:	This article studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The investment of a firm in one project imposes both a negative business‐stealing and a positive business‐giving externality on the rival firms. We show that when the project that is relatively more profitable for the firms appropriates a larger (smaller) fraction of the social surplus, a merger increases (decreases) consumer welfare by reducing investment in the most profitable project and increasing investment in the alternative project. The innovation portfolio effects of mergers may dominate the usual market power effects.
ISSN:	0741-6261 1756-2171
DOI:	10.1111/1756-2171.12426