On R&D information sharing and merger

The paper deals with the interaction of sharing cost information and merger in a Cournot duopoly. We show that an innovating firm would share information about the cost realization with its rival provided the market size is relatively small or, the R&D technology is relatively more efficient in a medium market size. However, in a large market, or in a medium market size with less efficient R&D technology, the innovating firm does not share information with its rival. In equilibrium whether information sharing occurs or not, merger is always formed. We find that the social welfare may be higher under incomplete information regime. We also establish the role of trade association in facilitating merger through information exchange.