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Xavier Boutin, EC and IEE Print
Friday, 01 March 2013, 12:15 - 13:15

Xavier Boutin, EC and IEE

Mergers and the Dynamics of Innovation

Abstract: This paper proposes to analyse the impact of mergers on the dynamics of innovation in the context of a dynamic oligopoly with discrete time. It shows that the distribution of states has a dramatic influence on the outcome of innovation, a fact that could not be addressed in previous research in a static framework. If some states are very innovative but extremely unlikely, they do not contribute to average innovation. This leads to very different heuristics, compared to previous static frameworks. A very strong stylized fact is for instance that a duopoly is, on average, very un-innovative. As a consequence, while there is scope for mergers that increase innovation, this is not the case of mergers to duopolies. Issues commonly quoted by practitioners and policy makers like "scale matters" or "symmetry matters" are stylized facts of this model. This paper also shows that mergers that increase symmetry in markets are indeed more likely to increase the average level of innovation. However, this mitigating factor is not sufficient to tip the balance for mergers to duopoly.

Location: R42.2.113
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