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Start-up Acquisitions and Innovation Strategies

Author

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  • Schmutzler, Armin
  • Letina, Igor
  • Seibel, Regina

Abstract

This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up's technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant's innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.

Suggested Citation

  • Schmutzler, Armin & Letina, Igor & Seibel, Regina, 2020. "Start-up Acquisitions and Innovation Strategies," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224631, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc20:224631
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    References listed on IDEAS

    as
    1. Gordon M. Phillips & Alexei Zhdanov, 2013. "R&D and the Incentives from Merger and Acquisition Activity," The Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 34-78.
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    8. Motta, Massimo & Tarantino, Emanuele, 2021. "The effect of horizontal mergers, when firms compete in prices and investments," International Journal of Industrial Organization, Elsevier, vol. 78(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    innovation; acquisitions; mergers; competition; start-ups;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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