Brown Bag Seminar Industrial Economics

Innovation has recently come to the attention of Antitrust Authorities, even though the effect of mergers on innovation is still hotly debated. I study how the activity of Antitrust Authorities impacts future innovation of merging firms. Exploiting a change in notification rules I build an event study comparing mergers notified to the authorities with non-notified ones. I develop a new methodology to identify horizontal mergers, even between small private firms, involving text analysis of their patent abstracts. As a validation, my definition of horizontal mergers matches reasonably well with actual FTC decisions. As a result of the event study, I show that non-notified horizontal mergers lead to lower innovation effort, measured as patenting activity. This implies that Antitrust Authorities are effective in preventing mergers that would be harmful to innovation, if these mergers are notified to them