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Upstream Mergers, Downstream Competition, and R&D Investments
Author(s) -
Milliou Chrysovalantou,
Pavlou Apostolis
Publication year - 2013
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12034
Subject(s) - merge (version control) , downstream (manufacturing) , upstream (networking) , competition (biology) , business , industrial organization , monetary economics , microeconomics , economics , telecommunications , computer science , marketing , biology , ecology , information retrieval
In this paper, we provide an explanation for why upstream firms merge, highlighting the role of R&D investments and their nature, as well as the role of downstream competition. We show that an upstream merger generates two distinct efficiency gains when downstream competition is not too strong and R&D investments are sufficiently generic: The merger increases R&D investments and decreases wholesale prices. We also show that upstream firms merge unless R&D investments are too specific and downstream competition is neither too weak nor too strong. When the merger materializes, the merger‐generated efficiencies pass on to consumers, and thus, consumers can be better off.