New research shows company mergers may increase innovation

Thursday, 16 November 2023

New research from Nottingham University Business School (NUBS) has shown that some company mergers may promote product innovation and benefit society, contrary to previously held opinions.

In previous research, merger decisions, which see companies merge to create a single firm, have been criticised for removing competition in the market and for their adverse effects on innovation.

Antitrust authorities, which challenge company mergers, prevented mergers due to their possible adverse effects on innovation and competition, previously supported by research in this area. 

Professor Arijit Mukherjee, from Nottingham University Business School, challenges this in his new research paper, published in Economics Letters, and suggests that mergers may increase product innovation and benefit society in the presence of passive cross ownership - where businesses hold non-controlling shares in rival businesses - or cooperative research. 

Competition among businesses encourages them to invest a significant amount in research. Both passive cross ownership and cooperative research tend to reduce investments by reducing competitive behaviour or, in other words, creating more collusive behaviour among the businesses.

On the other hand, mergers between businesses creates an upward pressure on investments in research by increasing the profits of the businesses. The intensity of competition in the product market plays an important role to determine the net effect.

In an industry with severe price wars, mergers may increase product innovation and benefit society in the presence of passive cross ownership or cooperative research.

Professor Mukherjee said: "Challenging mergers due to their adverse effects on innovation is a complex matter. This research explains how passive cross ownership and cooperative research contribute to this complexity. The intensity of competition in the product market plays an important role for the innovation and welfare raising effects of a merger. These factors make decision making by antitrust authorities difficult."

Antitrust authorities may actually reduce product innovation and the betterment of society by preventing mergers in these industries when there is a severe price war among the businesses. 

The full research paper is available here.

Story credits

More information is available from Professor Arijit Mukherjee on

Faith Pring - Media Relations Manager
Phone: 0115 748 4411
Location: University of Nottingham, University Park

Notes to editors:

About the University of Nottingham

Ranked 32 in Europe and 16th in the UK by the QS World University Rankings: Europe 2024, the University of Nottingham is a founding member of the Russell Group of research-intensive universities. Studying at the University of Nottingham is a life-changing experience, and we pride ourselves on unlocking the potential of our students. We have a pioneering spirit, expressed in the vision of our founder Sir Jesse Boot, which has seen us lead the way in establishing campuses in China and Malaysia - part of a globally connected network of education, research and industrial engagement.

Nottingham was crowned Sports University of the Year by The Times and Sunday Times Good University Guide 2024 – the third time it has been given the honour since 2018 – and by the Daily Mail University Guide 2024.

The university is among the best universities in the UK for the strength of our research, positioned seventh for research power in the UK according to REF 2021. The birthplace of discoveries such as MRI and ibuprofen, our innovations transform lives and tackle global problems such as sustainable food supplies, ending modern slavery, developing greener transport, and reducing reliance on fossil fuels.

The university is a major employer and industry partner - locally and globally - and our graduates are the second most targeted by the UK's top employers, according to The Graduate Market in 2022 report by High Fliers Research.

We lead the Universities for Nottingham initiative, in partnership with Nottingham Trent University, a pioneering collaboration between the city’s two world-class institutions to improve levels of prosperity, opportunity, sustainability, health and wellbeing for residents in the city and region we are proud to call home.

More news…

Media Relations - External Relations

The University of Nottingham
YANG Fujia Building
Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB

telephone: +44 (0) 115 951 5798