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
Date Written: July 21, 2020
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: Suggested Citation