Mergers in Innovation Competition: A Contest Framework with Knowledge Spillovers

ISBN-13: 9783824481705 / Angielski / Miękka / 2005 / 295 str.

Claus van der Velden;Peter J. Jost

Opis

The industrial structures in Europe and the United States have changed decisively since the end of the last millennium. The increasing globalization and liberalization of markets have led firms to expand or at least to consolidate their positions in the market by the acquisition of other firms. This mainly concerns horizontal mergers among competitors in the same industry such as the " mega-mergers" between Daimler and Chrysler or between Hochst and Rh6ne-Poulenc. In the theoretical literature this issue has been risen and analyzed quite early, with the result that an important research stream within industrial economics deals with the impact of horizontal mergers on the industrial structure, the competition between firms and consumer welfare. Given that many mergers hold synergies in the field of R&D, this research is especially focused on the analysis of the effects of mergers on innovation efforts of firms and the whole industry. This is where this book starts: While most analyses focus on the cooperation of firms in the frame of process innovation, Claus van der Velden concentrates in his work on product innovation. In a micro economic model of a patent contest he examines the effects of mergers on the innovation process and the profits of the merging firm and its competitors.

Spis treści

Content.- 1 Introduction.- 1.1 Background.- 1.2 Plan of Study.- I Knowledge Spillovers and Horizontal Mergers.- 2 Knowledge, Innovation and Spillovers.- 2.1 Economic Properties of Knowledge.- 2.1.1 Some Conceptional Distinctions of Knowledge.- 2.1.2 Market Failure Characteristics.- 2.1.3 Summary of Economic Properties of Knowledge.- 2.2 Innovation Activities.- 2.2.1 Concepts and Definitions.- 2.2.2 Incentives to Innovate.- 2.2.3 Intellectual Property Rights.- 2.3 Knowledge Spillovers.- 2.4 Supplement: Absorptive Capacity.- 3 Horizontal Mergers.- 3.1 Concepts and Definitions.- 3.1.1 Mergers vs. Acquisitions.- 3.1.2 Horizontal, Vertical and Conglomerate Mergers.- 3.1.3 Hostile Takeovers.- 3.2 Motives for (Horizontal) Merger.- 3.2.1 Value Creation.- 3.2.2 Production Cost Reduction.- 3.2.3 Transaction Cost Reduction.- 3.2.4 Redistribution of Rents.- 3.2.5 Concluding Remarks.- II Innovation and Industry Structure.- 4 Previous Research.- 4.1 Concentration and Innovation.- 4.2 R&D Cooperation and Spillovers.- 4.3 Competition on Product Innovation.- 4.3.1 The Loury (1979) and Lee/Wilde (1980) Model.- 4.3.2 Structure of (R&D) Contest Models.- 5 Contests with Spillovers.- 5.1 Model specification.- 5.2 Two Firms.- 5.2.1 Properties of the Probability Function.- 5.2.2 Equilibrium Analysis.- 5.2.3 Cooperation Between Duopolists.- 5.2.4 Monopoly.- 5.3 n Firms.- 5.3.1 Technological Risk.- 5.3.2 Certain Innovation Success.- 5.4 Discussion of the Model.- III Merger in Oligopolistic Contests.- 6 Mergers in Contest Models.- 6.1 Introduction.- 6.2 Merger Profitability.- 6.2.1 Profitability without Spillovers.- 6.2.2 Profitability with Spillovers.- 7 Post-Merger Organization of R&D.- 7.1 Fusion of R&D Departments.- 7.1.1 R&D Expenditures in Equilibrium.- 7.1.2 Profits in Equilibrium.- 7.2 R&D Units as Profit Centers.- 7.2.1 R&D Expenditures in Equilibrium.- 7.2.2 Profits in Equilibrium.- 7.2.3 Supplement: Incomplete Spillovers.- 7.3 R&D Units as Cost Centers.- 7.3.1 Knowledge Sharing.- 7.3.2 Knowledge Keeping.- 7.4 Merger with Centralized Budget Responsibility.- 7.4.1 R&D Expenditures in Equilibrium.- 7.4.2 Profits in Equilibrium.- 7.5 Summary.- 8 Mergers in Contests with Synergies.- 8.1 The Model Setting.- 8.2 A Numeric Example.- 8.3 Three Firm Industry without Technological Risk.- 8.3.1 Equilibrium Efforts.- 8.3.2 Equilibrium Profits.- 8.4 Three Firm Industry with Spillovers.- 8.4.1 Equilibrium Efforts.- 8.4.2 Equilibrium Profits.- 9 Conclusions and Remarks.- 9.1 Summary.- 9.2 Discussion.- 9.3 Implications.- 9.4 Limitations.- C Autonomous Budget Responsibility.- C.1 Total R&D Expenditures.- C.2 Profit Comparison.- D Centralized Budget Responsibility.- D.l Equilibrium R&D Expenditures.- D.2 Expenditure Comparison.- D.3 Profit Comparison.

O autorze

Dr. Claus van der Velden promovierte bei Prof. Dr. Peter-J. Jost am Lehrstuhl für Organisationstheorie der Wissenschaftlichen Hochschule für Unternehmensführung (WHU) in Vallendar. Er ist Senior Consultant bei Simon-Kucher & Partners in Bonn.

Blurb

In many industries innovations play a crucial role for business success and competing firms spend large amounts of money on the development of new products. The dramatic concentration process which occurred in many industries in the last decade did not only affect the competition in product markets but also had an impact on innovation strategies.

Claus van der Velden analyses various strategic aspects of mergers by applying microeconomic models of patent contests. He draws attention to a specific but nonetheless important aspect of many real world mergers, namely the effects of mergers on the willingness to invest in R&D and on innovation profitability. He shows that the organization of the R&D activities after a merger has a significant impact on the transaction's profitability. The study also considers the consequences of knowledge spillovers in innovation processes for R&D costs and thus for a merger's outcome.