The interactions of R&D investments and horizontal mergers

In a homogenous good industry in which firms choose their cost-reducing R&D investments and make merger proposals prior to competing à la Cournot, we identify conditions under which there are coalition-proof Nash equilibria involving horizontal mergers as well as non-integration. Mergers arise whenever the R&D technology is sufficiently effective. Moreover, if firms’ R&D investments are substitutes (complements) and the bargaining power is unevenly (evenly) distributed among merger participants, a merger is the unique coalition-proof Nash equilibrium. Antitrust policy guidelines are simple when the welfare standard is the consumer surplus and R&D investments are substitutes, but are more complex when the standard is total surplus and/or R&D investments are complements.