Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies
University of Zurich, Department of Economics, Working Paper No. 358, Revised version
72 Pages Posted: 29 Sep 2020 Last revised: 26 Oct 2021
Date Written: October 2021
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