Antitrust Limits on Startup Acquisitions
25 Pages Posted: 21 Mar 2019
Date Written: March 10, 2019
Should there be limits on startup acquisitions by dominant firms? Efficiency requires that startups sell their technology to the right incumbents, that they develop the right technology, and that they invest the right amount in R&D. In a model of differentiated oligopoly, we show distortions along all three margins if there are no limits on startup acquisition. Leading incumbents make acquisitions partially to keep lagging incumbents from catching up technologically. When startups can choose what technology they invent, they are biased toward inventions which improve the leader's technology rather than those which help the laggard incumbent catch up. Further, upon obtaining a pure monopoly, the leading incumbent's marginal willingness to pay for new technologies falls abruptly, diminishing private returns on future innovations. We consider antitrust measures that could help to mitigate these problems.
Keywords: startup, startup acquisitions, antitrust, innovation, competition policy, vertical mergers, licensing, compulsory licensing
JEL Classification: L40, L15, L24, L26, K21, O30, O31, O32, O33, O34
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