Mergers and Product Innovation: Seeds and GM Crops

The authors examine the additional issues raised by innovation in merger review. They outline the economic challenges generated by mergers in the presence of innovation and propose a new typology to assess static effects, dynamic effects, and efficiency. Régibeau and Rockett hypothesise that remedying the static effects of merger largely mitigates the negative effects on innovation, since they flow through the same channels. If these cannot be remedied, or if foreclosure in innovation markets is a concern, then analysing the offsetting positive effects on innovation becomes indispensable to a fair review. Here, the burden of proof should be on the merging parties, since the size of these “additional” effects will depend on features of the R&D process that are better known to the merging parties than to the competition authority. These principles lead Régibeau and Rockett to propose a policy algorithm, which distinguishes between first and second order effects, and helps to compare the innovation dimension of mergers to the pricing/output dimension. They empirically implement this algorithm in sample mergers drawn from the genetically modified crops and seed industries, leading them to conclusions for the merger policy of emergent economies, such as BRICS.