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.