Innovation and mergers in generalized asymmetric oligopolies

Abstract

AbstractThis paper addresses the impact of horizontal mergers on innovation, in an industry with a generic number of low‐cost and high‐cost competitors who first decide their level of process innovation and then compete in quantities in the product market. We derive the Nash equilibrium expressions for this game as a function of all the parameters involved, including number of players of each type, production costs, cost reductions achieved, and associated process innovation costs. Model results and parameter dependency are then illustrated in with a simulation of horizontal merger effects.