International College of Economics and Finance

Research Seminar by Arina Nikandrova (Birkbeck, University of London)

On Thursday, November 8 ICEF held the Research Seminar

Speaker: Arina Nikandrova (Birkbeck, University of London)
Theme: "The Effect of Mergers on Innovation" joint with Kaustav Das

Abstract: We study the effect of a two-to-one merger in a dynamic model of research and development (R&D). R&D activity is modelled as strategic experimentation with three-armed bandits where the risky arms distribute lump-sum payoffs according to independent Poisson processes. The intensity of each Poisson process is either high or low, and initially unknown to the firms. In addition to learning externalities, the model features payoff externalities to capture the tradeoff between cannibalization and appropriability. Cannibalization refers to the reduced incentives to undertake R&D post merger because the products resulting from innovation by one merging party would compete against the products of the other merging party. Appropriability refers to the extent to which a firm can realize the benefits generated by its innovation efforts. We consider the impact of cannibalization and appropriability on symmetric Markov perfect equilibria.


ICEF seminars