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Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies

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

Abstract

This paper provides a theory of strategic innovation project choice by incumbents and start-ups which serves as a foundation for the analysis of acquisition policy. We show that prohibiting acquisitions has a weakly negative innovation effect. We provide conditions determining the size of the effect and, in particular, conditions under which it is zero. We further analyze the effects of less restrictive policies, including merger remedies and the tax treatment of acquisitions and initial public offerings. Such interventions tend to prevent acquisitions only if the entrant has sufficiently high stand-alone profits.

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  • Letina, Igor & Schmutzler, Armin & Seibel, Regina, 2020. "Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies," CEPR Discussion Papers 15167, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15167
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    Cited by:

    1. Cao, Yiran & Lin, ping & Zhang, Tianle, 2024. "Upstream Killer Acquisitions and Market Structure," MPRA Paper 123344, University Library of Munich, Germany.
    2. Jin, Ginger Zhe & Leccese, Mario & Wagman, Liad, 2023. "How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    3. 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).
    4. 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).
    5. Tsubuteishi, Kyogo, 2025. "Startup Noncompetes in the Shadow of Acquihiring," MPRA Paper 123852, University Library of Munich, Germany.
    6. 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.
    7. Stöhr, Annika, 2021. "Price effects of horizontal mergers: A retrospective on retrospectives," Ilmenau Economics Discussion Papers 151, Ilmenau University of Technology, Institute of Economics.
    8. repec:diw:diwwpp:dp1987 is not listed on IDEAS
    9. Brunner, Philipp & Letina, Igor & Schmutzler, Armin, 2024. "Research joint ventures: The role of financial constraints," European Economic Review, Elsevier, vol. 165(C).
    10. Marc Bourreau & Axel Gautier, 2024. "Innovation and Startup Acquisition," CESifo Working Paper Series 11569, CESifo.
    11. Kaplow, Louis, 2021. "Horizontal merger analysis," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    12. Javier D. Donna & Pedro Pereira, 2024. "Structural Presumptions for Non-horizontal Mergers in the 2023 Merger Guidelines: A Primer and a Path Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 303-345, August.
    13. Christian Fons-Rosen & Pau Roldan-Blanco & Tom Schmitz, 2022. "The Effects of Startup Acquisitions on Innovation and Economic Growth," Working Papers 944, Queen Mary University of London, School of Economics and Finance.
    14. Christopher Teh & Dyuti Banerjee & Chengsi Wang, 2022. "Acquisition-induced kill zone," Monash Economics Working Papers 2022-24, Monash University, Department of Economics.
    15. 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.
    16. 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).
    17. Fumagalli, Chiara & Motta, Massimo & Tarantino, Emanuele, 2022. "Shelving or developing? Optimal policy for mergers with potential competitors," CEPR Discussion Papers 15113, C.E.P.R. Discussion Papers.
    18. Chiara Fumagalli & Massimo Motta & Emanuele Tarantino, 2020. "Shelving or developing? The acquisition of potential competitors under financial constraints," Economics Working Papers 1735, Department of Economics and Business, Universitat Pompeu Fabra.
    19. 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.
    20. Lefouili, Yassine & Madio, Leonardo, 2025. "Mergers and Investments: Where Do We Stand?," TSE Working Papers 25-1617, Toulouse School of Economics (TSE).
    21. 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.
    22. Christoph Carnehl & Johannes Schneider, 2021. "A Quest for Knowledge," Papers 2102.13434, arXiv.org, revised Dec 2024.
    23. Steven Callander & Niko Matouschek, 2022. "The Novelty of Innovation: Competition, Disruption, and Antitrust Policy," Management Science, INFORMS, vol. 68(1), pages 37-51, January.
    24. Álvaro Parra & Guillermo Marshall, 2024. "Monopsony Power and Upstream Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 72(2), pages 1005-1020, June.

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    More about this item

    Keywords

    Innovation; Killer acquisitions; Merger policy; Potential 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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