Abstract:

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. To explain the mechanism driving mi findings, I build a model with endogenous merger choice where Antitrust Authorities have a deterrence effect on anticompetitive mergers, which are also most detrimental to innovation. 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 deterring mergers that would be harmful to innovation. An increase in the number of non-notified anticompetitive mergers is consistent with the deterrence effect of Antitrust Authorities.

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