Killer Acquisitions

Journal of Political Economy, Vol. 129, No. 3, pp. 649–702, March 2021

97 Pages Posted: 12 Sep 2018 Last revised: 2 May 2021

See all articles by Colleen Cunningham

Colleen Cunningham

London Business School

Florian Ederer

Boston University - Markets, Public Policy, and Law; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

Date Written: April 19, 2020

Abstract

This paper argues incumbent firms may acquire innovative targets solely to discontinue the target's innovation projects and preempt future competition. We call such acquisitions "killer acquisitions." We develop a model illustrating this phenomenon. Using pharmaceutical industry data, we show that acquired drug projects are less likely to be developed when they overlap with the acquirer's existing product portfolio, especially when the acquirer's market power is large due to weak competition or distant patent expiration. Conservative estimates indicate 5.3 percent to 7.4 percent of acquisitions in our sample are killer acquisitions. These acquisitions disproportionately occur just below thresholds for antitrust scrutiny.

Keywords: Innovation, Mergers and Acquisitions, Drug Development, Competition

JEL Classification: O31, L41, G34, L65

Suggested Citation

Cunningham, Colleen and Ederer, Florian and Ma, Song, Killer Acquisitions (April 19, 2020). Journal of Political Economy, Vol. 129, No. 3, pp. 649–702, March 2021 , Available at SSRN: https://ssrn.com/abstract=3241707 or http://dx.doi.org/10.2139/ssrn.3241707

Colleen Cunningham

London Business School ( email )

Sussex Place
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London, NW1 4SA
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Florian Ederer (Contact Author)

Boston University - Markets, Public Policy, and Law ( email )

Boston, MA
United States

National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Song Ma

Yale School of Management ( email )

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New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/songma/

National Bureau of Economic Research (NBER) ( email )

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United States

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