Bernhard Ganglmair, University of Mannheim: "Mergers and the Direction of Innovation"

We examine how firms adapt their innovation strategy in response to a change in the competitive environment in the aftermath of mergers in the industry. We find that outsiders to a merger (merging firms' peers) change their patenting behavior concurrently with a surge in merger activity. We document that these firms shift their patent portfolio to de-emphasize process innovation in favor of product innovation. Our results hint at a negative effect of mergers on productivity-enhancing innovation by non-merging parties, and suggest that incorporating productivity, productivity growth, and their sources into the standard tool kit will bring merger control a step closer to a fully dynamic-efficiency analysis.