Seminar in Microeconomics - Igor Letina (University of Bern)
Killer acquisitions and the incentive to innovate
Tuesday 19 November 2019 (12h15 - 13h30) - Extranef - 109
Competition policy observers are becoming increasingly concerned about adverse effects of mergers on potential competition. In particular, a lot of attention has been paid to so-called killer acquisitions, where an incumbent firm buys up an innovative start-up and then does not commercialize its research ideas. This paper deals with the effects of killer acquisitions on innovation in a model where an incumbent and an entrant can both invest in multiple research projects. We find that prohibiting killer acquisitions reduces the diversity of research approaches pursued by the firms and thereby the probability of developing breakthrough innovations. These findings have to be weighed against the well-known anti-competitive effect resulting from the elimination of the would-be entrant.