SHERP

R&D and Merger Profitability

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Authors
Atallah, Gamal
Issue Date
2005
Publisher
Seoul Journal of Economics
Citation
Seoul Journal of Economics 18 (No. 4 2005): 325-354
Keywords
Mergers; Merger paradox; R&D Cooperation; R&D Spillovers
Abstract
This paper analyzes the interaction between R&D and merger profitability. The industry is composed of symmetric firms who undertake cost-reducing R&D and compete in output. A subgroup of firms merge, and all firms adjust their R&D investments to the new market structure. It is found that in most cases R&D has a negligible impact on merger profitability, and does not change the critical number of firms required to make a merger profitable. However, when firms are indifferent toward a merger in the absence of R&D, R&D has an effect on merger profitability. Noncooperative R&D makes such mergers profitable for low and high levels of spillovers, and unprofitable for intermediate levels of spillovers; moreover, the range of spillovers such that a merger is unprofitable due to R&D increases with concentration. Cooperative R&D without information sharing makes such mergers profitable for low spillovers, but unprofitable for high spillovers. Cooperative R&D with information sharing makes such mergers unprofitable.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1343
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.18(4) (Winter 2005)
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