Mergers and Product Innovation: Seeds and GM Crops

Competition authorities increasingly worry about the impact that concentrations might have on innovation. Until recently, a common view was that, because of the well-documented “inverted U-shape” relationship between innovation and market concentration, mergers were only likely to have an adverse effect on innovation if market concentration is already quite high. New cases and new economic papers have challenged this orthodoxy, arguing that a refutable presumption that mergers lead to less innovation might make for better policy. We review this debate and propose a typology of effects to help decide whether or not such a presumption is actually warranted. We then apply these principles to the case of mergers in the seed/GM crops industry, which is of particular significance for BRIC countries. Finally we present a first illustrative empirical exploration of this typology and the economic principles that underlie it by examining how previous mergers in the industry have affected the merged parties’ propensity to patent in various jurisdictions. Because the economic needs of BRIC countries can be distinct, we emphasise not only the effect of mergers on total patent counts but also possible effects on the specific areas where research takes place.