Gathering round Big Tech: How the Market for Acquisitions Reinforces Regional Inequalities in the US

38 Pages Posted: 14 May 2021

See all articles by Maryann P. Feldman

Maryann P. Feldman

University of North Carolina at Chapel Hill; University of North Carolina (UNC) at Chapel Hill - Department of Public Policy; Kenan Flagler Business School

Frederick Guy

University of London - Birkbeck College

Simona Iammarino

London School of Economics & Political Science (LSE) - Department of Geography and Environment

Carolin Ioramashvili

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: May 13, 2021

Abstract

Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase.We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.

Keywords: tech giants, market power, start-ups, acquisitions, regional inequality

JEL Classification: L1, O3, R12

Suggested Citation

Feldman, Maryann P. and Guy, Frederick and Iammarino, Simona and Ioramashvili, Carolin, Gathering round Big Tech: How the Market for Acquisitions Reinforces Regional Inequalities in the US (May 13, 2021). Kenan Institute of Private Enterprise Research Paper No. 21-01, Available at SSRN: https://ssrn.com/abstract=3845674 or http://dx.doi.org/10.2139/ssrn.3845674

Maryann P. Feldman (Contact Author)

University of North Carolina at Chapel Hill ( email )

CB 3435
University of North Carolina
Chapel Hill, NC 27599-3140
United States

HOME PAGE: http://maryannfeldman.web.unc.edu/

University of North Carolina (UNC) at Chapel Hill - Department of Public Policy ( email )

Abernathy Hall
Chapel Hill, NC 27599-3435
United States

Kenan Flagler Business School ( email )

Chapel Hill, NC
United States

Frederick Guy

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Simona Iammarino

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Carolin Ioramashvili

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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