Big-Tech Mergers: Innovation, Competition for the Market, and the Acquisition of Emerging Competitors

37 Pages Posted: 2 Jul 2020 Last revised: 29 Oct 2020

See all articles by Michael L. Katz

Michael L. Katz

University of California, Berkeley - Department of Economics; Haas School of Business

Date Written: July 21, 2020

Abstract

There is broad concern that merger policy toward Big Tech has been too lenient. Big Tech typically operates in markets characterized by innovation-driven “competition for the market.” I show that this fact provides a rationale for heightened scrutiny of incumbents’ acquisitions of emerging or potential competitors. I also address the widespread argument that permissive merger policy promotes innovative entry by facilitating entry for buyout. I show that permissive merger policy can also discourage entrant innovation. One way is by diminishing entrants’ incentives to invest in marginal product improvements when such improvements reduce the gains from merger. A second way is by facilitating incumbency for buyout, under which an incumbent makes investments in order to extract rents from an entrant through merger.

Keywords: Antitrust, Big Tech, Digital Markets, Innovation, Merger Policy

JEL Classification: D43, K21, L41

Suggested Citation

Katz, Michael L., Big-Tech Mergers: Innovation, Competition for the Market, and the Acquisition of Emerging Competitors (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=3624380 or http://dx.doi.org/10.2139/ssrn.3624380

Michael L. Katz (Contact Author)

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Haas School of Business ( email )

Berkeley, CA 94720
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
490
Abstract Views
1,538
rank
70,904
PlumX Metrics