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Review of Industrial Organization

, Volume 54, Issue 3, pp 465–484 | Cite as

Competition, Mergers, and R&D Diversity

  • Richard J. GilbertEmail author
Article
  • 33 Downloads

Abstract

This paper describes a model of research and development (R&D) investment in which firms can choose any number of R&D projects that have independent and identical probabilities of success. The measure of R&D diversity is the number of projects that are undertaken by the industry. Absent spillovers or profits at risk from innovation, mergers often—but not always—decrease R&D diversity; however, the incremental effects decline rapidly with the number of industry rivals. Mergers can have significant adverse effects if the merging firms have large profits that are at risk from an innovation. A merger can promote investment in R&D and increase expected consumer surplus if discoveries have sufficiently large information spillovers.

Keywords

Competition Innovation Oligopoly Mergers Research and development 

Notes

Acknowledgements

I am grateful for helpful comments from Giulio Federico, Igor Letina, Christian Riis, Michael Salinger, Larry White, an anonymous referee, and participants in the Northeastern University/American Antitrust Institute Workshop on Innovation and Antitrust, October 20, 2017.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of California, BerkeleyBerkeleyUSA

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