Recent research from Nottingham University Business School just found something surprising about company mergers. Usually, people think mergers are bad because they reduce competition and hurt innovation. But this new study challenges that idea.

People who watch over mergers, called antitrust authorities, have been against them because of past research saying they’re bad for innovation and competition.

Boosting innovation

But the new study says the opposite. It suggests that mergers can actually boost innovation and help society, especially when companies have what’s called “passive cross-ownership.” That means businesses own a bit of each other but don’t control them.

Competition usually makes companies spend a lot on figuring out what their rivals are up to. But if companies have passive cross-ownership or work together on research, they don’t compete as much, and that can lead to less investment in figuring out the other guy.

On the flip side, when companies merge, it can push them to invest more in research because it makes them more profitable. How much competition there is in the product market matters too.

Fighting hard

In industries where companies fight hard on prices, mergers might be good for innovation and society, especially when passive cross-ownership or collaborative research is going on.

“Challenging mergers due to their adverse effects on innovation is a complex matter,” the researchers conclude. “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.”