Horizontal Mergers, Firm Heterogeneity, and R&D Investments

Noriaki Matsushima 1 , Yasuhiro Sato 2 ,  and Kazuhiro Yamamoto 2
  • 1 Institute of Social and Economic Research, Osaka University, 6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan
  • 2 Graduate School of Economics, Osaka University, 1-31 Machikaneyama, Toyonaka, Osaka 560-0043, Japan
Noriaki Matsushima, Yasuhiro Sato and Kazuhiro Yamamoto

Abstract

We investigate the incentive and welfare implications of a merger when heterogeneous oligopolists compete both in process R&D and on the product market. We examine how a merger affects the output, investment, and profits of firms. In addition, we examine whether firms have merger incentives, and, if so, whether such mergers are desirable from the viewpoint of social welfare. If R&D is not expensive and if large cost differences between efficient and inefficient firms exist, a merger between homogeneous firms tends to occur even though it harms welfare.

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