IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v72y2024i1p118-156.html
   My bibliography  Save this article

How Do Start‐up Acquisitions Affect the Direction of Innovation?

Author

Listed:
  • Esmée S. R. Dijk
  • José L. Moraga‐González
  • Evgenia Motchenkova

Abstract

A start‐up engages in an investment portfolio problem by choosing how much to invest in a “non‐rival” project and a “rival” project that threatens an incumbent. Anticipating its acquisition, the start‐up distorts its investment portfolio in order to raise acquisition rents. This may improve or worsen the direction of innovation and consumer surplus. The bigger the difference in social surplus appropriability across the two projects, the more likely it is that the direction of innovation improves and consumers benefit from an acquisition. These results also hold if the acquirer takes over the research facilities of the start‐up.

Suggested Citation

  • Esmée S. R. Dijk & José L. Moraga‐González & Evgenia Motchenkova, 2024. "How Do Start‐up Acquisitions Affect the Direction of Innovation?," Journal of Industrial Economics, Wiley Blackwell, vol. 72(1), pages 118-156, March.
    • Handle: RePEc:bla:jindec:v:72:y:2024:i:1:p:118-156
    DOI: 10.1111/joie.12349
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12349
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joie.12349?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, September.
    2. Katz, Michael L., 2021. "Big Tech mergers: Innovation, competition for the market, and the acquisition of emerging competitors," Information Economics and Policy, Elsevier, vol. 54(C).
    3. José L. Moraga-González & Vaiva Petrikaitė, 2013. "Search costs, demand-side economies, and the incentives to merge under Bertrand competition," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 391-424, September.
    4. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    5. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
    6. Brett Hollenbeck, 2020. "Horizontal mergers and innovation in concentrated industries," Quantitative Marketing and Economics (QME), Springer, vol. 18(1), pages 1-37, March.
    7. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, December.
    8. Paul Klemperer & A. Jorge Padilla, 1997. "Do Firms' Product Lines Include Too Many Varieties?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 472-488, Autumn.
    9. Gilbert, Richard J. & Katz, Michael L., 2022. "Dynamic merger policy and pre-merger product choice by an entrant," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    10. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2025. "Mergers and Investments: Where Do We Stand?," TSE Working Papers 25-1617, Toulouse School of Economics (TSE).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Esmée Dijk & José Luis Moraga-González & Evgenia Motchenkova, 2023. "Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios," Tinbergen Institute Discussion Papers 23-047/VII, Tinbergen Institute.
    2. Chrysovalantou Milliou & Joel Sandonis, 2018. "Manufacturer Mergers and Product Variety in Vertically Related Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 1-24, March.
    3. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Sep 2024.
    4. Nie, Pu-yan & Wang, Chan & Wen, Hong-xing, 2021. "Horizontal mergers under uniform resource constraints," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    5. Geoffrey Parker & Georgios Petropoulos & Marshall Van Alstyne, 2021. "Platform mergers and antitrust [Ex-post assessment of merger control decisions in digital markets]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(5), pages 1307-1336.
    6. Lefouili, Yassine & Madio, Leonardo, 2025. "Mergers and Investments: Where Do We Stand?," TSE Working Papers 25-1617, Toulouse School of Economics (TSE).
    7. Gugler, Klaus & Szücs, Florian, 2016. "Merger externalities in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 230-254.
    8. Maarten Janssen & Vladimir Karamychev, 2013. "Mergers in Bidding Markets," Tinbergen Institute Discussion Papers 13-012/VII, Tinbergen Institute.
    9. Bruno Jullien & Yassine Lefouili, 2018. "Horizontal mergers and innovation," Post-Print hal-03263838, HAL.
    10. Tomaso Duso & Klaus Gugler & Florian Szücs, 2013. "An Empirical Assessment of the 2004 EU Merger Policy Reform," Economic Journal, Royal Economic Society, vol. 123(11), pages 596-619, November.
    11. Kitto, Andrew R., 2024. "The effects of non-Big 4 mergers on audit efficiency and audit market competition☆," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    12. Joel Stiebale & Florian Szücs, 2022. "Mergers and market power: evidence from rivals' responses in European markets," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 678-702, December.
    13. Nocke, Volker & Schutz, Nicolas, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," CEPR Discussion Papers 12905, C.E.P.R. Discussion Papers.
    14. Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
    15. D. Dragone & L. Lambertini & A. Mantovani, 2006. "Horizontal Mergers with Scale Economies," Working Papers 571, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2018. "Threatening to buy: Private equity buyouts and antitrust policy," Economics Letters, Elsevier, vol. 164(C), pages 31-34.
    17. Ralph B. Siebert, 2019. "Estimating Differential Dynamic Merger Effects on Market Structure and Entry in Related Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 431-458, November.
    18. Huck, Steffen & Konrad, Kai A. & Müller, Wieland, 2000. "Profitable horizontal mergers: A market structure-oriented view," SFB 373 Discussion Papers 2000,27, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    19. Moresi, Serge & Schwartz, Marius, 2023. "Product innovation with vertical differentiation: Is a monopolist's incentive weaker?," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    20. Fauli-Oller, Ramon & Sandonis, Joel, 2003. "To merge or to license: implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 655-672, May.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:72:y:2024:i:1:p:118-156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.