Working Paper: CEPR ID: DP18017
Authors: Marc Ivaldi; Nicolas Petit; Selukhan Nekba
Abstract: Do established firms buy new businesses to take out future competition? Recent works in economics literature use “killer acquisitions” as a graphic concept to describe these transactions. How concerned should competition policy be? The answer to this question hinges on how much the “theory” of killer acquisitions explains. To gain insights on this, the paper studies a sample of past cases composed of all merger transactions reviewed by the European Commission (“EC”) in ICT industries. In line with the predictions of the theory, some of these cases might constitute “killer acquisitions”. Hence, the paper asks: did they lead to a reduction of competition? By focusing on perceptions of the competitors of the acquired entity as reported in financial disclosures, the paper shows that one could not observe a disappearance of the target’s products, a weakening of competing firms, and/or a post-merger lowering or absence of entry and innovation. In other words, the paper finds no factual evidence supporting the killer acquisition theory. Whilst based on small number of observations, the paper’s findings are strong. Indeed the paper’s methodology overcomes the inherent problem of lack of observing the post-merger activities of the target, and addresses the inference problem that stems from the fact that even if the target’s products are discontinued in the buyer’s firm, it is non sequitur to infer from this a post-merger weakening of competition.
Keywords: killer acquisition; dynamic competition; mergers and acquisitions; innovation
JEL Codes: G34; L41; L86; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Postmerger Rival Perception (G34) | Perception of target or acquirer as competitor (G34) |
| Postmerger Sales Dynamics (L14) | Rival expansion in response to merger (L49) |
| Postmerger Sales Dynamics (L14) | Decrease in industry output (L16) |
| Postmerger Competitive Events (L19) | Evidence of new product introductions or firm creations (L26) |
| Killer acquisitions (G34) | Competitive threats elimination (L12) |