Killer Acquisitions

Cunningham, Colleen; Ederer, Florian; Ma, Song

doi:10.1086/712506

Cited by 264 publications

(104 citation statements)

References 100 publications

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“…Of course, these are the cases that matter in practice, as enforcers would not be likely to assess a merger in a fragmented industry with many competing players. Similarly, Cunningham et al (2020) provide robust evidence of innovation concerns in the pharmaceutical industry. In their study of a large number of pharmaceutical acquisitions, incumbent firms often acquire innovative targets solely to discontinue the target's innovation projects and thus pre-empt future competition.…”

Section: Practice Of Mergers and Innovationmentioning

confidence: 87%

Mergers with Differentiated Products: Where Do We Stand?

Valletti

Zenger

2021

Rev Ind Organ

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On the occasion of the 10th anniversary of the 2010 U.S. Horizontal Merger Guidelines, this article provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. Drawing on our experience with merger enforcement in Europe, we discuss both static and dynamic competition, with a special emphasis on the calibration of competitive effects. We also discuss the role of market shares and structural presumptions in differentiated product markets.

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Section: Practice Of Mergers and Innovationmentioning

confidence: 87%

Mergers with Differentiated Products: Where Do We Stand?

Valletti

Zenger

2021

Rev Ind Organ

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“…Our model's most apparent limitation concerns the baseline replicator dynamics equation, though, which implies that the emergent concentration is 'good concentration' (Covarrubias et al 2020) and fully justifiable by productivity differences. Empirically, it is questionable if concentration indeed only reflects productivity (Covarrubias et al 2020), with firms erecting artificial barriers to entry or acquiring competitors and discontinuing their innovative product lines in so-called 'killer acquisitions' (Cunningham et al 2021) leading to 'bad concentration'. Since it is at least conceivable that a high concentration of the good type is preferable to lower bad concentration, the inclusion of strategic anticompetitive behaviour might alter the policy conclusions of our model and tilt them more towards antitrust measures, which might like in our baseline model induce high ex-post concentration purely based on productivity differences.…”

Section: Discussionmentioning

confidence: 99%

Equal chances, unequal outcomes? Network-based evolutionary learning and the industrial dynamics of superstar firms

Schulz

Mayerhoffer

2021

J Bus Econ

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With the advent of platform economies and the increasing availability of online price comparisons, many empirical markets now select on relative rather than absolute performance. This feature might give rise to the ‘winner takes all/most’ phenomenon, where tiny initial productivity differences amount to large differences in market shares. We study the effect of heterogeneous initial productivities arising from locally segregated markets on aggregate outcomes, e.g., regarding revenue distributions. Several of those firm-level characteristics follow distributional regularities or ‘scaling laws’ (Brock in Ind Corp Change 8(3):409–446, 1999). Among the most prominent are Zipf’s law describing the largest firms‘ extremely concentrated size distribution and the robustly fat-tailed nature of firm size growth rates, indicating a high frequency of extreme growth events. Dosi et al. (Ind Corp Change 26(2):187–210, 2017b) recently proposed a model of evolutionary learning that can simultaneously explain many of these regularities. We propose a parsimonious extension to their model to examine the effect for deviations in market structure from global competition, implicitly assumed in Dosi et al. (2017b). This extension makes it possible to disentangle the effects of two modes of competition: the global competition for sales and the localised competition for market power, giving rise to industry-specific entry productivity. We find that the empirically well-established combination of ‘superstar firms’ and Zipf tail is consistent only with a knife-edge scenario in the neighbourhood of most intensive local competition. Our model also contests the conventional wisdom derived from a general equilibrium setting that maximum competition leads to minimum concentration of revenue (Silvestre in J Econ Lit 31(1):105–141, 1993). We find that most intensive local competition leads to the highest concentration, whilst the lowest concentration appears for a mild degree of (local) oligopoly. Paradoxically, a level playing field in initial conditions might induce extreme concentration in market outcomes.

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“…This is well documented in other information-based sectors, such as pharma and microprocessors (Feldman et al 2020). Cunningham, Ma and Ederer (2021), for instance estimate (conservatively, they say) that between 5.3% and 7.4% of US acquisitions between 1989 and 2010 were "acquire to kill", and thus harmful for both innovation and competition.…”

Section: Start-ups and The Geography Of Big Tech Acquisitionsmentioning

confidence: 99%

Gathering round Big Tech: how the market for acquisitions reinforces regional inequalities in the US

et al. 2021

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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.

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Killer Acquisitions

Cited by 264 publications

References 100 publications

Mergers with Differentiated Products: Where Do We Stand?

Mergers with Differentiated Products: Where Do We Stand?

Equal chances, unequal outcomes? Network-based evolutionary learning and the industrial dynamics of superstar firms

Gathering round Big Tech: how the market for acquisitions reinforces regional inequalities in the US

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