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Mergers of Complements and Entry in Innovative Industries

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  • Federico Etro
Abstract
I study a merger between producers of complement inputs facing potential entry, with investment by the incumbents in deterministic cost reduction and by the entrants in probabilistic innovation, and then competition in prices. The merger solves Cournot complementarity problems in investment and pricing, which is what makes it profitable but also potentially anti-competitive. When the demand is inelastic the merger harms consumers by reducing R&D of the entrants if the incumbents are efficient enough (always when bundling is adopted). Instead, with a demand elastic enough, the merger increases consumer surplus (even with bundling).

Suggested Citation

  • Federico Etro, 2019. "Mergers of Complements and Entry in Innovative Industries," Working Papers - Economics wp2019_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2019_15.rdf
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    References listed on IDEAS

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    Cited by:

    1. Tsuritani, Ryosuke, 2023. "Strategic Input Price Discrimination with Horizontal Shareholding," MPRA Paper 121176, University Library of Munich, Germany.
    2. Han, Tien-Der & Mukherjee, Arijit, 2023. "Mergers of complements, endogenous product differentiation and welfare," Mathematical Social Sciences, Elsevier, vol. 126(C), pages 30-41.
    3. Gautier, Axel & Lamesch, Joe, 2021. "Mergers in the digital economy," Information Economics and Policy, Elsevier, vol. 54(C).
    4. Akgün, Uğur & Caffarra, Cristina & Etro, Federico & Stillman, Robert, 2020. "On the welfare impact of mergers of complements: Raising rivals’ costs versus elimination of double marginalization," Economics Letters, Elsevier, vol. 195(C).
    5. Kadner-Graziano, Alessandro S., 2023. "Mergers of Complements: On the Absence of Consumer Benefits," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    6. GAUTIER Axel, & LAMESCH Joe,, 2020. "Mergers in the digital economy," LIDAM Discussion Papers CORE 2020001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Mergers; R&D; Cournot complementarity; bundling; antitrustin high-tech industries.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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