Abstract:
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This paper analyzes the effects of horizontal mergers on innovation and consumer welfare in a vertically
related industry context, in which downstream firms compete for customers with a differentiated final good
and can undertake R&D activities to reduce their unit costs. Upstream and downstream horizontal mergers
can take place.
The results suggest that competition authorities aiming to promote innovation and consumer welfare
should treat upstream and downstream mergers differently, since horizontal mergers between upstream firms
are detrimental to innovation and consumer welfare. By contrast, policy makers should evaluate the market
characteristics under downstream integration. We show that downstream horizontal mergers can be both
innovation and consumer welfare enhancing in the short run, when the markets are sufficiently small.
Keywords: Horizontal Mergers. Innovation. Vertical Relations.
JEL Classification Numbers: L22, L41, O32 |