The Long and Successful History of Nascent Acquisitions Suggests Caution in Rethinking Antitrust Enforcement

Abstract

Policymakers and antitrust enforcers are debating whether to increase scrutiny of “nascent” acquisitions, in which an established company purchases a smaller firm in a related market, out of a concern that such acquisitions may stifle competition by nipping in the bud a potential rival. Despite such concerns, America’s corporate history teaches that these types of acquisitions have served the interests of both competition and consumers. In their early years, many iconic companies in critical industries grew in part through acquisitions of smaller firms. In many cases, nascent purchases provided critical financing that allowed smaller firms to survive and innovate, and helped larger companies bring new products to more consumers, more cheaply, and more quickly via their existing distribution chains and marketing expertise. The empirical economic analysis confirms that vertical acquisitions usually lead to lower prices and greater innovation. Accordingly, policymakers should exercise restraint before they discourage such acquisitions, whether through rules changes or through lawsuits that seek to unwind such purchases years later.

Keywords: antitrust, mergers, technology, incipient, nascent, economic history

JEL Classification: K21