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Killer Acquisitions

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  • Colleen Cunningham
  • Florian Ederer
  • Song Ma

Abstract

This paper argues that incumbent firms may acquire innovative targets solely to discontinue the target’s innovation projects and preempt future competition. We call such acquisitions “killer acquisitions.” We develop a model illustrating this phenomenon. Using pharmaceutical industry data, we show that acquired drug projects are less likely to be developed when they overlap with the acquirer’s existing product portfolio, especially when the acquirer’s market power is large because of weak competition or distant patent expiration. Conservative estimates indicate that 5.3%–7.4% of acquisitions in our sample are killer acquisitions. These acquisitions disproportionately occur just below thresholds for antitrust scrutiny.

Suggested Citation

  • Colleen Cunningham & Florian Ederer & Song Ma, 2021. "Killer Acquisitions," Journal of Political Economy, University of Chicago Press, vol. 129(3), pages 649-702.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/712506
    DOI: 10.1086/712506
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    Cited by:

    1. Rachel Griffith & John Van Reenen, 2021. "Product market competition, creative destruction and innovation," IFS Working Papers W21/43, Institute for Fiscal Studies.
    2. Mello, Marco & Moscelli, Giuseppe, 2022. "Voting, contagion and the trade-off between public health and political rights: Quasi-experimental evidence from the Italian 2020 polls," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1025-1052.
    3. Gutiérrez, Germán & Jones, Callum & Philippon, Thomas, 2021. "Entry costs and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 77-91.
    4. 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).
    5. Giulio Cornelli & Sebastian Doerr & Lavinia Franco & Jon Frost, 2021. "Funding for fintechs: patterns and drivers," BIS Quarterly Review, Bank for International Settlements, September.
    6. Cavenaile, Laurent & Celik, Murat Alp & Tian, Xu, 2021. "The Dynamic Effects of Antitrust Policy on Growth and Welfare," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 42-59.
    7. Rabbani, Maysam, 2023. "Mergers with future rivals can boost prices, bar entry, and intensify market concentration," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    8. Kang, Jun-Koo & Li, Yingxiang & Oh, Seungjoon, 2022. "Venture Capital Coordination in Syndicates, Corporate Monitoring, and Firm Performance," Journal of Financial Intermediation, Elsevier, vol. 50(C).
    9. 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).
    10. Dewatripont, Mathias, 2022. "Which policies for vaccine innovation and delivery in Europe?," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    11. Watzinger, Martin & Schnitzer, Monika, 2022. "The Breakup of the Bell System and its Impact on US Innovation," Rationality and Competition Discussion Paper Series 341, CRC TRR 190 Rationality and Competition.
    12. Chen, Jun & Elliott, Matthew & Koh, Andrew, 2023. "Capability accumulation and conglomeratization in the information age," Journal of Economic Theory, Elsevier, vol. 210(C).
    13. Xing, Fei & Hai, Mengdie & Cai, Jiayao, 2023. "Network centrality and technology acquisitions: Evidence from China's listed business groups," Economic Modelling, Elsevier, vol. 120(C).
    14. Li, Xuelin & Liu, Tong & Taylor, Lucian A., 2023. "Common ownership and innovation efficiency," Journal of Financial Economics, Elsevier, vol. 147(3), pages 475-497.
    15. Michael G Jacobides & Ioannis Lianos, 2021. "Ecosystems and competition law in theory and practice [Ecosystem as structure: an actionable construct for strategy]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(5), pages 1199-1229.
    16. Kyle, Margaret K., 2022. "Incentives for pharmaceutical innovation: What’s working, what’s lacking," International Journal of Industrial Organization, Elsevier, vol. 84(C).

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