Downstream mergers and upstream investment
- Faulí Oller, Ramon
- Sandonís Díez, Joel
- Santamaría García, Juana
Year of publication: 2007
Issue: 11
Type: Working paper
Abstract
In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.