Horizontal mergers, firm heterogeneity, and R&D investments∗

We investigate the incentive and the welfare implications of a merger when heteroge-neous oligopolists compete both in process R&D and on the product market. We examine how a merger affects the output, investment, and profits of firms, whether firms have merger incentives, and, if so, whether such mergers are desirable from the viewpoint of social welfare. We also derive equilibrium configurations and explore their welfare properties. JEL classification: L41, L13, O32 Key words: mergers, oligopoly, R&D, heterogeneity ∗We would like to thank seminar participants at Nagoya University for their helpful comments. Our research has been financially supported by the Grand-in-Aid for Scientific Research