American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The Effect of Mergers on Innovation
American Economic Journal: Microeconomics
(pp. 348–94)
Abstract
We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: It may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes.Citation
Das, Kaustav, Tatiana Mayskaya, and Arina Nikandrova. 2026. "The Effect of Mergers on Innovation." American Economic Journal: Microeconomics 18 (2): 348–94. DOI: 10.1257/mic.20240062Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- O31 Innovation and Invention: Processes and Incentives