Search results

Do mergers raise substantial additional issues when the parties have significant innovation programs? To answer this, we examine the merger-related efficiencies that arise only with substantial innovation, arguing that innovation-intensive mergers should be treated more leniently than mergers without this dynamic dimension. We provide guidance on evidence that might determine the magnitude of such efficiencies. Next, we argue that where innovation is "directed" towards a product market, dealing with product line overlap should allay concerns about postmerger innovation. If research is not directed, we argue that theories of harm linked to the product market are unconvincing. Instead, one should look at theories of harms in the innovation market, which stem from the advantage in being first to innovate. Such first-mover advantages can be rooted in patent protection, switching costs, or network effects. This approach helps explain some of the remedies recently imposed on transactions such as Dow-Dupont and Bayer-Monsanto.

Abstract
We study a two-country model where two firms, one domestic and the other foreign, must decide when to introduce their new product into a market. The home government may apply an import tariff, an administrative delay, or both to the product of the foreign firm. An administrative delay imposes a waiting period between the time when the quality of the foreign product is determined and the time when the product can actually be sold. Our main interest is the differential effect of the tariff and the administrative delay on the timing of new product introductions and the resulting change in home, foreign and world welfare. We show that administrative delays are less efficient instruments for maximizing home welfare than tariffs. With a tariff, the home government can affect the timing of entry to ensure that the domestic firm moves first at the socially optimal date. Although an optimally chosen delay can achieve the same pattern of introduction, it does not yield any tariff revenues. As a result, if the tariff may be set optimally, administrative delays are not used in a discriminatory manner. If trade liberalization constrains the import tariff to be below its domestically optimal level, discriminatory administrative delays may become part of the optimal policy of the home country. As the optimal delay policy leads to lower levels of world welfare than the optimal tariff, trade liberalization can be welfare decreasing.