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Mergers in Multidimensional Competition
Author(s) -
DAVIDSON CARL,
FERRETT BEN
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2007.00595.x
Subject(s) - counterintuitive , market power , complementarity (molecular biology) , competition (biology) , economics , exploit , microeconomics , industrial organization , product market , market share , business , computer science , finance , ecology , philosophy , computer security , epistemology , incentive , biology , genetics , monopoly
Horizontal mergers are often driven by the desire to exploit R&D complementarities. We investigate the positive features of such a merger when oligopolists compete both in process R&D and on the product market. For a non‐trivial degree of R&D complementarity, we show that the merger has the following intuitively appealing features independently of the strategic variable in market competition: insiders benefit; outsiders are harmed; and insiders end up larger than outsiders. These results contrast with those of traditional models of merger to achieve market power alone, which are known to be counterintuitive and sensitive to the mode of product market competition.