DP15167 Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies

Author(s): Igor Letina, Armin Schmutzler, Regina Seibel
Publication Date: August 2020
Keyword(s): Innovation, killer acquisitions, Merger Policy, Potential competition, start-ups
JEL(s): G34, L41, O31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15167

This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We show that prohibiting killer acquisitions strictly reduces the variety of innovation projects. By contrast, we find that prohibiting other acquisitions only has a weakly negative innovation effect, and we provide conditions under which the effect is zero. Furthermore, for both killer and other acquisitions, we identify market conditions under which the innovation effect is small, so that prohibiting acquisitions to enhance competition would be justified.