Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies

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.

Keywords: Innovation, killer acquisitions, merger policy, potential competition, start-ups

JEL Classification: O31, L41, G34

Suggested Citation: Suggested Citation

Letina, Igor and Schmutzler, Armin and Seibel, Regina, Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies (October 2021). University of Zurich, Department of Economics, Working Paper No. 358, Revised version, Available at SSRN: https://ssrn.com/abstract=3673150 or http://dx.doi.org/10.2139/ssrn.3673150