Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Barigozzi, Francesca

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Auriol, Emmanuelle / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias / Zulehner, Christine

4 Issues per year

IMPACT FACTOR 2017: 0.306
5-year IMPACT FACTOR: 0.492

CiteScore 2017: 0.50

SCImago Journal Rank (SJR) 2017: 0.414
Source Normalized Impact per Paper (SNIP) 2017: 0.531

See all formats and pricing
More options …
Volume 13, Issue 2


Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Horizontal Mergers, Firm Heterogeneity, and R&D Investments

Noriaki Matsushima
  • Corresponding author
  • Institute of Social and Economic Research, Osaka University, 6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Yasuhiro Sato / Kazuhiro Yamamoto
Published Online: 2013-08-24 | DOI: https://doi.org/10.1515/bejeap-2012-0058


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.

Keywords: mergers; oligopoly; R&D; heterogeneity

JEL Classification: L41; L13; O32


  • Andrade, G., M. Mitchell, and E. Stafford. 2001. “New Evidence and Perspectives on Mergers.” Journal of Economic Perspectives 15:103–20.Web of ScienceCrossrefGoogle Scholar

  • Atallah, G. 2005. “R&D and Merger Profitability.” Seoul Journal of Economics 18:325–54.Web of ScienceGoogle Scholar

  • Barros, P. P. 1998. “Endogenous Mergers and Size Asymmetry of Merger Participants.” Economics Letters 60:113–19.CrossrefGoogle Scholar

  • Barros, P. P., and T. Nilssen. 1999. “Industrial Policy and Firm Heterogeneity.” Scandinavian Journal of Economics 101:597–616.CrossrefGoogle Scholar

  • Bartolini, D. 2011. “Investment and Merging as an Endogenous Coalition Formation Game.” Essex Discussion Paper No. 628.Google Scholar

  • Bertrand, O., K. Nilsson, P.-J. Norbäck, and L. Persson. 2012. “Should Countries Block Foreign Takeovers of R&D Champions and Promote Greenfield Entry?” Canadian Journal of Economics 45:1083–124.CrossrefWeb of ScienceGoogle Scholar

  • Burgelman, R. A. 1983. “A Process Model of Internal Corporate Venturing in the Diversified Major Firm.” Administrative Science Quarterly 28:223–44.CrossrefGoogle Scholar

  • Capron, L. 1999. “The Long-Term Performance of Horizontal Acquisitions.” Strategic Management Journal 20:987–1018.CrossrefGoogle Scholar

  • Cassiman, B., M. G. Colombo, P. Garrone, and R. Veugelers. 2005. “The Impact of M&A on the R&D Process: An Empirical Analysis of the Role of Technological- and Market-Relatedness.” Research Policy 34:195–220.CrossrefGoogle Scholar

  • Davidson, C., and B. Ferret. 2007. “Mergers in Multidimensional Competition.” Economica 74:695–712.CrossrefGoogle Scholar

  • de Man, A.-P., and G. Duysters. 2005. “Collaboration and Innovation: A Review of the Effects of Mergers, Acquisitions, and Alliances on Innovation.” Technovation 25:1377–87.CrossrefGoogle Scholar

  • Farrell, J., and C. Shapiro. 1990. “Horizontal Mergers: An Equilibrium Analysis.” American Economic Review 80:107–26.Google Scholar

  • Ferrett, B., and J. Poyago-Theotoky. 2012. “Horizontal Agreements and R&D Complementarities: Merger versus RJV.” Working Paper Series in Rimini Centre for Economic Analysis 13_12.Google Scholar

  • Friberg, R., P.-J. Norbäck, and L. Persson. 2012. “Ex Post Merger Evaluations and Strategic Pre-merger Investments.” Journal of Competition Law & Economics 8:831–48.CrossrefWeb of ScienceGoogle Scholar

  • Fumagalli, E., and H. Vasconcelos. 2009. “Sequential Cross-Border Mergers.” International Journal of Industrial Organization 27:175–87.Web of ScienceCrossrefGoogle Scholar

  • Harrison, T. D. 2011. “Do Mergers Really Reduce Costs? Evidence from Hospitals.” Economic Inquiry 49:1054–69.CrossrefPubMedWeb of ScienceGoogle Scholar

  • Heywood, J. S., and M. McGinty. 2007. “Convex Costs and the Merger Paradox Revisited.” Economic Inquiry 45:342–9.CrossrefGoogle Scholar

  • Heywood, J. S., and M. McGinty. 2008. “Leading and Merging: Convex Costs, Stackelberg and the Merger Paradox.” Southern Economic Journal 74:879–93.Web of ScienceGoogle Scholar

  • Horn, H., and L. Persson. 2000. “Endogenous Mergers in Concentrated Markets.” International Journal of Industrial Organization 19:1213–44.Web of ScienceGoogle Scholar

  • Horn, H., and L. Persson. 2001. “The Equilibrium Ownership of an International Oligopoly.” Journal of International Economics 53:307–33.CrossrefGoogle Scholar

  • Huck, S., and K. A. Konrad. 2004. “Merger Profitability and Trade Policy.” Scandinavian Journal of Economics 106:107–22.CrossrefGoogle Scholar

  • Ishida, J., T. Matsumura, and N. Matsushima. 2011. “Market Competition, R&D and Firm Profits in Asymmetric Oligopoly.” Journal of Industrial Economics 59:484–505.Web of ScienceCrossrefGoogle Scholar

  • Jensen, M. C., and R. S. Ruback. 1983. “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics 11:5–50.CrossrefGoogle Scholar

  • Jost, P.-J., and C. van der Velden. 2008. “Organizational Design of R&D After Mergers and the Role of Budget Responsibility.” Journal of Economics and Business 60:469–84.CrossrefGoogle Scholar

  • Kabiraj, T., and A. Mukherjee. 2000. “Cooperation in R&D and Production: A Three-Firm Analysis.” Journal of Economics 71:281–304.CrossrefGoogle Scholar

  • Lahiri, S., and Y. Ono. 1988. “Helping Minor Firms Reduces Welfare.” Economic Journal 98:1199–202.CrossrefGoogle Scholar

  • Larsson, R., and S. Finkelstein. 1999. “Integrating Strategic, Organizational, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Realization.” Organization Science 10:1–26.CrossrefGoogle Scholar

  • Lommerud, K. E., O. R. Straume, and L. Sørgard. 2006. “National versus International Mergers in Unionized Oligopoly.” RAND Journal of Economics 37:212–33.CrossrefGoogle Scholar

  • Matsushima, N. 2001. “Horizontal Mergers and Merger Waves in a Location Model.” Australian Economic Papers 40:263–86.CrossrefGoogle Scholar

  • Mukherjee, A. 2006. “Cross-Border Merger and Domestic Welfare.” Economics Bulletin 6(18):1–8.Google Scholar

  • Perry, M., and R. Porter. 1985. “Oligopoly and the Incentive for Horizontal Merger.” American Economic Review 75:219–27.Google Scholar

  • Phillips, G. M., and A. Zhdanov. 2013. “R&D and the Incentives from Merger and Acquisition Activity.” Review of Financial Studies 26:34–78.Web of ScienceCrossrefGoogle Scholar

  • Qiu, L. D., and W. Zhou. 2006. “International Mergers: Incentives and Welfare.” Journal of International Economics 68:38–58.CrossrefGoogle Scholar

  • Röller, L.-H., J. Stennek, and F. Verboven. 2006. “Efficiency Gains from Merger.” In European Merger Control: Do We Need an Efficiency Defence? edited by F. Ilzkovitz and R. Meiklejohn, 84–201. Cambridge, MA: Edward Elgar.Google Scholar

  • Salant, S., S. Switzer, and R. Reynolds. 1983. “Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot–Nash Equilibrium.” Quarterly Journal of Economics 98:185–99.CrossrefGoogle Scholar

  • Sinha, U. B. 2006. “On R&D Information Sharing and Merger.” mimeo.Google Scholar

  • Stenbacka, L. R. 1991. “Mergers and Investments in Cost Reduction with Private Information.” International Journal of Industrial Organization 9:397–405.CrossrefGoogle Scholar

  • Tremblay, V. J., and C. H. Tremblay. 1988. “The Determinants of Horizontal Acquisitions: Evidence from the US Brewing Industries.” Journal of Industrial Economics 37:21–45.CrossrefGoogle Scholar

  • Zhao, X. 2009. “Technological Innovation and Acquisitions.” Management Science 55:1170–83.CrossrefWeb of ScienceGoogle Scholar

  • Ziss, S. 1994. “Strategic R&D with Spillovers, Collusion and Welfare.” Journal of Industrial Economics 42:375–93.CrossrefGoogle Scholar

About the article

Published Online: 2013-08-24

Capron (1999) pointed out the significant risk of damaging acquisition performance when the divested assets and redeployed resources are those of the target.

Perry and Porter (1985) investigated the impact of a horizontal merger that causes a cost reduction through aggregating the capital of the merging firms. Fumagalli and Vasconcelos (2009) extended this to the discussion of international mergers. Those articles cannot investigate how a horizontal merger changes the strategic interaction of efforts on cost-reducing activities. Farrell and Shapiro (1990) comprehensively investigated the effect of the change in the output through a horizontal merger. One of our main concerns is how firms execute horizontal mergers under Cournot competition with R&D although the properties in Farrell and Shapiro (1990) are shared with those in our article.

Ziss (1994) discussed a merger under a duopoly case in which two firms engage in R&D with spillover. Kabiraj and Mukherjee (2000) considered the case in which two firms with the same ex ante marginal cost engage in R&D and then decide whether to merge given the outcome of R&D is determined. Mukherjee (2006) discussed the effect of cross-border mergers on R&D and welfare. Jost and van der Velden (2008) also discussed the effect of horizontal mergers when firms engage in R&D investments for a patent race with spillover.

Friberg, Norbäck, and Persson (2012) and Phillips and Zhdanov (2013) captured the bidding behavior of firms in an acquisition process after firms engage in R&D. These articles mainly focus on the strategic aspect of premerger R&D. We discuss the relationship between those articles and ours in Section 4.

Sinha (2006) also discussed the effect of horizontal mergers when the outcome of R&D can be private information. Atallah (2005) analyzed merger profitability in the case of cost-reducing R&D. In his numerical example, however, R&D investment does not provide incentives for mergers in most cases.

This type of cost heterogeneity is also used in Barros and Nilssen (1999) and Ishida, Matsumura, and Matsushima (2011).

We do not consider heterogeneity of R&D investment costs; that is, is common to all firms. Although incorporating this matter would be important, it complicates the analysis in this article. Moreover, we guess that this type of heterogeneity would have a similar effect on the incentive to merge as ex ante cost heterogeneity.

Throughout the article, we study the pairwise mergers, which means that mergers consist of two firms.

This criterion is consistent with the equilibrium concept of the core (see Horn and Persson 2000, 2001). In fact, when the firms are homogeneous, an allocation involving a merger that satisfies this criterion is in the core under the restriction of a pairwise merger. In the next section, where we introduce firm heterogeneity, we use the core as an equilibrium concept and provide an analysis of the equilibrium.

A change in the market share due to a pairwise merger is given by

which is greater for a smaller number of firms.

See Davidson and Ferrett (2007), Lommerud, Straume, and Sørgard (2006), and Qiu and Zhou (2006) for recent examples.

See Horn and Persson (2001) for a detailed discussion on these points.

Incorporating convex cost functions into quantity competition models, Heywood and McGinty (2007, 2008) reconsidered the problem of the “merger paradox.”

Although the discussion is not reported in this article, the result is available upon request.

They show that the strategic trade policy induces the domestic firms’ merger, because a domestic merger induces government to give subsidies to the merged domestic firm.

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 13, Issue 2, Pages 959–990, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2012-0058.

Export Citation

©2013 by Walter de Gruyter Berlin / Boston.Get Permission

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

Gamal Atallah
Southern Economic Journal, 2016, Volume 83, Number 1, Page 202

Comments (0)

Please log in or register to comment.
Log in