Fostering or stifling innovation? Investigating the consequences of a horizontal merger in Cournot and Bertrand markets.

Abstract

For decades countries have tried to impose strong regulations on mergers and acquisitions through competitive law. How a merger might affect a market prior to the merger happening is almost impossible to determine, especially if you look at how it might affect innovation. This thesis considers how a merger in a continuous market might affect Bertrand and Cournot competition in a simultaneous game, where they compete through price/output and cost-reducing R&D with technological spillover and product differentiation. The study supports the view presented by Jullien and Lefouili (2018): the overall impact of a merger on innovation might be either positive or negative. This study finds that if the market has significant technological spillover among firms, the merger increases the probability of reducing the firms’ investments, regardless of the competitive form. Furthermore, the study finds that price competition incentivizes a more competitive market, leading to a consistently lower required degree of spillover for a merger to affect the industry negatively.