IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v72y2024i1p118-156.html

How Do Start‐up Acquisitions Affect the Direction of Innovation?

Author

Listed:
  • Esmée S. R. Dijk
  • José L. Moraga‐González
  • Evgenia Motchenkova

Abstract

A start‐up engages in an investment portfolio problem by choosing how much to invest in a “non‐rival” project and a “rival” project that threatens an incumbent. Anticipating its acquisition, the start‐up distorts its investment portfolio in order to raise acquisition rents. This may improve or worsen the direction of innovation and consumer surplus. The bigger the difference in social surplus appropriability across the two projects, the more likely it is that the direction of innovation improves and consumers benefit from an acquisition. These results also hold if the acquirer takes over the research facilities of the start‐up.

Suggested Citation

  • Esmée S. R. Dijk & José L. Moraga‐González & Evgenia Motchenkova, 2024. "How Do Start‐up Acquisitions Affect the Direction of Innovation?," Journal of Industrial Economics, Wiley Blackwell, vol. 72(1), pages 118-156, March.
    • Handle: RePEc:bla:jindec:v:72:y:2024:i:1:p:118-156
    DOI: 10.1111/joie.12349
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12349
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joie.12349?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Katz, Michael L., 2021. "Big Tech mergers: Innovation, competition for the market, and the acquisition of emerging competitors," Information Economics and Policy, Elsevier, vol. 54(C).
    2. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
    3. Brett Hollenbeck, 2020. "Horizontal mergers and innovation in concentrated industries," Quantitative Marketing and Economics (QME), Springer, vol. 18(1), pages 1-37, March.
    4. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, December.
    5. Igor Letina & Armin Schmutzler & Regina Seibel, 2024. "Killer Acquisitions And Beyond: Policy Effects On Innovation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 591-622, May.
    6. Paul Klemperer & A. Jorge Padilla, 1997. "Do Firms' Product Lines Include Too Many Varieties?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 472-488, Autumn.
    7. Fumagalli, Chiara & Motta, Massimo & Tarantino, Emanuele, 2022. "Shelving or developing? Optimal policy for mergers with potential competitors," CEPR Discussion Papers 15113, Centre for Economic Policy Research.
    8. José L. Moraga-González & Vaiva Petrikaitė, 2013. "Search costs, demand-side economies, and the incentives to merge under Bertrand competition," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 391-424, September.
    9. Emanuele Tarantino & Chiara Fumagalli & Massimo Motta, 2020. "Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints," Working Papers 1197, Barcelona School of Economics.
    10. Gilbert, Richard J. & Katz, Michael L., 2022. "Dynamic merger policy and pre-merger product choice by an entrant," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    11. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, September.
    12. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    13. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2026. "Mergers and investments: Where do we stand?," International Journal of Industrial Organization, Elsevier, vol. 105(C).
    2. Allain, Marie-Laure & Bourreau, Marc & Darlas, Pierre-François, 2025. "Digital business models and quality investment," International Journal of Industrial Organization, Elsevier, vol. 103(PA).
    3. Benkert, Jean-Michel & Letina, Igor & Liu, Shuo, 2025. "Startup acquisitions: Acquihires and talent hoarding," European Economic Review, Elsevier, vol. 178(C).
    4. Özlem Bedre Defolie & Gary Biglaiser & Bruno Jullien, 2026. "Gaming the Giants : How Startups Shape Innovation to Spark Acquisition Wars," Working Papers hal-05601463, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Esmée Dijk & José Luis Moraga-González & Evgenia Motchenkova, 2023. "Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios," Tinbergen Institute Discussion Papers 23-047/VII, Tinbergen Institute.
    2. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Sep 2024.
    3. Lefouili, Yassine & Madio, Leonardo, 2026. "Mergers and investments: Where do we stand?," International Journal of Industrial Organization, Elsevier, vol. 105(C).
    4. Geoffrey Parker & Georgios Petropoulos & Marshall Van Alstyne, 2021. "Platform mergers and antitrust [Ex-post assessment of merger control decisions in digital markets]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(5), pages 1307-1336.
    5. Gilbert, Richard J. & Katz, Michael L., 2022. "Dynamic merger policy and pre-merger product choice by an entrant," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    6. Cabral, Luís, 2025. "Big tech acquisitions," International Journal of Industrial Organization, Elsevier, vol. 103(PA).
    7. Chrysovalantou Milliou & Joel Sandonis, 2018. "Manufacturer Mergers and Product Variety in Vertically Related Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 1-24, March.
    8. Heski Bar-Isaac & Justin P. Johnson & Volker Nocke, 2025. "Acquihiring for Monopsony Power," Management Science, INFORMS, vol. 71(4), pages 3485-3496, April.
    9. Benkert, Jean-Michel & Letina, Igor & Liu, Shuo, 2025. "Startup acquisitions: Acquihires and talent hoarding," European Economic Review, Elsevier, vol. 178(C).
    10. Motta, Massimo & Peitz, Martin, 2021. "Big tech mergers," Information Economics and Policy, Elsevier, vol. 54(C).
    11. Prado, Tiago S. & Bauer, Johannes M., 2022. "Big Tech platform acquisitions of start-ups and venture capital funding for innovation," Information Economics and Policy, Elsevier, vol. 59(C).
    12. Jean-Michel Benkert, Igor Letina, Shuo Liu, 2023. "Startup Acquisitions: Acquihires and Talent Hoarding," Diskussionsschriften dp2309, Universitaet Bern, Departement Volkswirtschaft.
    13. Nie, Pu-yan & Wang, Chan & Wen, Hong-xing, 2021. "Horizontal mergers under uniform resource constraints," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    14. Klaus Gugler & Florian Szücs & Ulrich Wohak, 2023. "Start-up Acquisitions, Venture Capital and Innovation: A Comparative Study of Google, Apple, Facebook, Amazon and Microsoft," Department of Economics Working Papers wuwp340, Vienna University of Economics and Business, Department of Economics.
    15. Yuanzhu Lu & Sougata Poddar & Swapnendu Banerjee & Monalisa Ghosh, 2025. "Patent Licensing and Strategic Shelving," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(3), pages 367-396, March.
    16. Laureen de Barsy & Axel Gautier, 2024. "Big Tech Acquisitions and Innovation: An Empirical Assessment," CESifo Working Paper Series 11025, CESifo.
    17. Igor Letina & Armin Schmutzler & Regina Seibel, 2024. "Killer Acquisitions And Beyond: Policy Effects On Innovation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 591-622, May.
    18. Christopher Teh & Dyuti Banerjee & Chengsi Wang, 2022. "Acquisition-induced kill zone," Monash Economics Working Papers 2022-24, Monash University, Department of Economics.
    19. Gugler, Klaus & Szücs, Florian & Wohak, Ulrich, 2025. "Start-up acquisitions, venture capital and innovation: A comparative study of Google, Apple, Facebook, Amazon and Microsoft," International Journal of Industrial Organization, Elsevier, vol. 99(C).
    20. Derui Wang & Xiaole Wu & Christopher S. Tang & Yue Dai, 2025. "Endogenous Merger Decisions Among Competitors: Impact of Limited Capacity and Loyal Segments," Management Science, INFORMS, vol. 71(6), pages 4777-4794, June.

    More about this item

    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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:72:y:2024:i:1:p:118-156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.