This article discusses the considerations for forward looking economic analysis of dynamic innovation and R&D effects in mergers.
We live in the knowledge economy, where innovation is the primary driver of economic growth and improved quality of living. A growing proportion of innovation occurs in private firms via direct investments, often affected by mergers and acquisitions (M&A) at private sector firms, creating an intersection with competition policy. As innovation has become increasingly important, competition agencies have expanded and gradually elevated the status of innovation in their assessments of mergers or conduct on welfare. Promoting innovation is now often seen as a legitimate standalone objective. To facilitate a standalone analysis of innovation, competition agencies sometimes artificially define a separate market for R&D.
In this article, coauthors Kirti Gupta, Gregor Langus, and Vilen Lipatov discuss the considerations for forward looking economic analysis of dynamic innovation and R&D effects in mergers. Incorrectly measuring innovation or its future competitive effects has massive social and economic cost in a polarizing world where different important regions have differing mechanisms and objectives for innovation. The authors propose a comprehensive analytical framework to assess the effects of a merger, which specifies how firms make R&D investment decisions, how they finance R&D, how they innovate, and how they commercialize innovative products.
The article was originally published by Competition Policy International’s Antitrust Chronicle in November 2023.
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