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Upstream Killer Acquisitions and Market Structure

Author

Listed:
  • Cao, Yiran
  • Lin, ping
  • Zhang, Tianle

Abstract

Incumbent firms may acquire start-ups to eliminate potential competition without intending to develop new technology (killer acquisitions). We develop a model to examine the incentives and welfare implications of killer acquisitions under different market structures: vertical separation and integration. Our model focuses on the competition between an upstream incumbent firm and a start-up with the potential to develop superior technology, where the incumbent has the option to acquire the start-up and decide whether to continue the development of the superior technology. We find that killer acquisitions are more likely when the cost of developing the superior technology is moderate under both vertical separation and integration. However, these acquisitions lead to a welfare loss only when the development cost is relatively low. Comparing vertical integration to separation, the probability of killer acquisition is higher (lower) when the incumbent firm has a greater (smaller) chance of successfully developing the superior technology.

Suggested Citation

  • Cao, Yiran & Lin, ping & Zhang, Tianle, 2024. "Upstream Killer Acquisitions and Market Structure," MPRA Paper 123344, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123344
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    File URL: https://mpra.ub.uni-muenchen.de/123344/1/MPRA_paper_123344.pdf
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    References listed on IDEAS

    as
    1. Igor Letina & Armin Schmutzler & Regina Seibel, 2024. "Killer Acquisitions And Beyond: Policy Effects On Innovation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 591-622, May.
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    6. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
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    More about this item

    Keywords

    innovation incentive; killer acquisitions; vertical integration.;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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