Colleen Cunningham, Florian Ederer and Song Ma ‘Killer Acquisitions’

This paper, available here, argues that incumbent  firms may acquire innovative targets solely to discontinue the target’s innovation projects and preempt future competition. Using pharmaceutical industry data, the paper shows that acquired drug projects are less likely to be developed when they overlap with the acquirer’s existing product portfolio, especially when the acquirer’s market power is large. Conservative estimates indicate 5.3% to 7.4% of acquisitions in the authors’ sample are killer acquisitions, which occur disproportionately just below thresholds for antitrust scrutiny. Section 2 outlines the theoretical framework and develops testable hypotheses. The authors first build a parsimonious model that combines endogenous acquisition decisions, innovation choices and product market competition. The model looks at acquisitions that occur when the innovative target  firm’s project is still under development, and therefore further development is necessary and costly, and the ultimate project success is uncertain. An incumbent acquirer has weaker incentives to continue development than an entrepreneur if the new project overlaps with (i.e….

Andrew Sweeting, Joel Schrag and Nathan Wilson ‘Not All Pre-Emptive Mergers Are Alike: A Classification of Recent Cases’ (2020) CPI October

There has been much recent debate about whether antitrust agencies have been sufficiently attentive to preemptive mergers, where one firm acquires another that it expects will become a more vigorous competitor in the future. The suggestion, sometimes described in terms of “killer acquisitions” (“kill zones”) or, less graphically, “the elimination of nascent competition”, is that agencies may have allowed transactions that, while perhaps not substantially reducing competition in the short-run, deprived consumers of lower prices, better products, and more variety in the future. It has been claimed that these types of mergers have been particularly common in certain sectors, such as the tech and pharmaceutical industries, but it is an open question whether these issues arise more generally. While these issues are important, the nature of the debate might lead people to believe that similar issues are raised by all preemptive merger cases. This paper by three economists at the FTC, available here, argues that this is wrong. It develops…