Antitrust Limits on Startup Acquisitions

Should there be limits on startup acquisitions by dominant firms? Efficiency requires that startups sell their technology to the right incumbents, that they develop the right technology, and that they invest the right amount in R&D. In a model of differentiated oligopoly, we show distortions alo...

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Bibliographic Details
Published inReview of industrial organization Vol. 56; no. 4; pp. 615 - 636
Main Authors Bryan, Kevin A., Hovenkamp, Erik
Format Journal Article
LanguageEnglish
Published New York Springer Science + Business Media 01.06.2020
Springer US
Springer Nature B.V
Subjects
Acquisition
Antitrust
Bias
Catching
Economics
Economics and Finance
Industrial Organization
Innovations
Inventions
Microeconomics
Monopolies
Oligopoly
R&D
Research & development
Startups
Technology
Willingness to pay
IO theory
Startups
Antitrust
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Summary:Should there be limits on startup acquisitions by dominant firms? Efficiency requires that startups sell their technology to the right incumbents, that they develop the right technology, and that they invest the right amount in R&D. In a model of differentiated oligopoly, we show distortions along all three margins if there are no limits on startup acquisition. Leading incumbents make acquisitions partially to keep lagging incumbents from catching up technologically. When startups can choose what kind of technology they invent, they are biased toward inventions that improve the leader’s technology rather than those that help the laggard incumbent catch up. Further, upon obtaining a pure monopoly, the leading incumbent’s marginal willingness to pay for new technologies falls abruptly, which diminishes private returns on future innovations. We consider antitrust measures that could mitigate these problems.
ISSN:0889-938X
1573-7160
DOI:10.1007/s11151-020-09751-5