Summary of A Simple Model of Mergers and Innovation

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The worldwide corporate buzzword is “innovation.” Firms looking to drive their creative capacities can pursue organic avenues, or alternatively, consider mergers and acquisitions to spur productivity. But the M&A path to innovation may not be the panacea that business leaders anticipate. Economists Giulio Federico, Gregor Langus and Tommaso Valletti employ various models to determine the overall efficacy of corporate combinations on innovation. getAbstract suggests this technically rigorous report to economists, analysts and policy experts.

In this summary, you will learn

  • How merger activity affects innovation in firms and industries,
  • Why mergers do not always lead to greater innovative capability, and
  • What impact mergers have on consumers.
 

About the Authors

Giulio Federico and Gregor Langus are economists at the European Commission in Brussels. Tommaso Valletti is an economics professor at Imperial College Business School, London.

 

Summary

Innovation is the corporate elixir for driving profitability and gaining market share. It seems logical to suppose that mergers between companies would increase opportunities for innovation, but that isn’t necessarily the case. Research shows that two rival companies entering a merger will influence the marketplace by altering the trajectory of “incentives to innovate.”


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