Role of acquisitions in driving innovation in the economy

Luke Wainscoat, Nick Twort and Andrew Brunt prepared a report on the economic literature regarding mergers and innovation, which was submitted to the Treasury’s consultation on merger reform. This report finds that:

• mergers and acquisitions drive innovation and in turn productivity in the economy. The extent and dispersal of innovation is therefore likely to be reduced if the proposed merger reforms lessen the incentive or ability for established firms to acquire others; and
• the idea that some firms acquire others to discontinue a product that may become a competitive constraint in the future applies to, at most, a narrow and specific set of circumstances. This consideration should therefore not affect an economy-wide regulation such as the merger regime.

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