LAW AND ECONOMY : COMPETITION POLICY - MERGER CONTROL - INNOVATION - RESEARCH AND DEVELOPMENT- EFFECTS ON PRICES

Impact on industry innovation of a merger between close competitors

The European Commission’s recent Dow/DuPont merger decision has reignited the debate regarding the impact of horizontal mergers on industry innovation. In this article we summarize recent empirical findings on the effect of mergers on industry and rivals’ innovation and we conduct an ex-post assessment of the impact on innovation of the 2009 merger between Unilever and Sara Lee in the deodorant market. This is a relevant case study because (i) innovation is an important aspect of competition in this industry and (ii) innovation played a key role in the Commission’s assessment of the merger.

I. Introduction 1. The European Commission’s recent Dow/DuPont merger decision has reignited the debate regarding the impact of horizontal mergers on industry innovation. [1] 2. Traditionally the emphasis of merger control has been on price effects not only because price is a key variable of competition but also because theoretical and empirical predictions of the impact of mergers on prices are unequivovocal. Economic models of oligopolistic competition unambiguously predict higher post-merger equilibrium prices because the merger reduces the competitive pressure on the merging parties and on other firms. However, firms compete on many dimensions other than price, including innovation. Ignoring the potential impact of a merger on innovation could result in an incomplete assessment

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Nadine Watson, Patricia Lorenzo, Impact on industry innovation of a merger between close competitors, February 2019, Concurrences Review N° 1-2019, Art. N° 89495, www.concurrences.com

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