One proposed reform will align New Zealand more closely with Australia’s regime, guarding against so-called ‘killer acquisitions’.
Competition authorities worry that large tech companies might buy start-ups not to build on their ideas but to shut them down. If a start-up threatens an incumbent’s business model, the incumbent supposedly deals with the threat by buying it and killing it.
It is not impossible for a company to try that. But how often does it really happen?
A new working paper by economists Florian Ederer, Regina Seibel, and Timothy Simcoe looks at 1,190 acquisitions by eight big tech firms: Amazon, Apple, Facebook, Google, Microsoft, Cisco, Intel and Qualcomm.
Their study focused on start-ups active in patenting – so not all acquisitions were included in the study.
But what they found challenges the ‘killer acquisition’ narrative. Overall, big tech companies buy start-ups to build on their technology rather than kill it.
For example, big companies tended to acquire smaller companies active in areas where the bigger firms were themselves active in research. That is the kind of thing a big company would do if it needed help progressing its own work.
And, after a start-up with expertise in an area is acquired, patenting in that start-up’s area tended to continue or rise, rather than fall – and especially if the big company bought more start-ups in that area. If buying a start-up hurt research in the start-up’s area of expertise, the opposite would happen.
Buying smaller firms one after another will face greater scrutiny under another proposed New Zealand reform around ‘creeping acquisitions’.
The work by Ederer and coauthors suggests that large tech companies’ creeping acquisitions in an area look more like building capability.
Finally, they find that a start-up’s patents wind up being cited more frequently by other patents after the start-up is bought by a larger tech company. That is also hard to square with stories of acquisitions killing innovation.
None of this means that there has never been or could never be a case of a real ‘killer’ acquisition.
But it does mean that the Commission needs to be cautious, lest its pursuit of killer acquisitions wind up killing productive innovation.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
It is not impossible for a company to try that. But how often does it really happen?
A new working paper by economists Florian Ederer, Regina Seibel, and Timothy Simcoe looks at 1,190 acquisitions by eight big tech firms: Amazon, Apple, Facebook, Google, Microsoft, Cisco, Intel and Qualcomm.
Their study focused on start-ups active in patenting – so not all acquisitions were included in the study.
But what they found challenges the ‘killer acquisition’ narrative. Overall, big tech companies buy start-ups to build on their technology rather than kill it.
For example, big companies tended to acquire smaller companies active in areas where the bigger firms were themselves active in research. That is the kind of thing a big company would do if it needed help progressing its own work.
And, after a start-up with expertise in an area is acquired, patenting in that start-up’s area tended to continue or rise, rather than fall – and especially if the big company bought more start-ups in that area. If buying a start-up hurt research in the start-up’s area of expertise, the opposite would happen.
Buying smaller firms one after another will face greater scrutiny under another proposed New Zealand reform around ‘creeping acquisitions’.
The work by Ederer and coauthors suggests that large tech companies’ creeping acquisitions in an area look more like building capability.
Finally, they find that a start-up’s patents wind up being cited more frequently by other patents after the start-up is bought by a larger tech company. That is also hard to square with stories of acquisitions killing innovation.
None of this means that there has never been or could never be a case of a real ‘killer’ acquisition.
But it does mean that the Commission needs to be cautious, lest its pursuit of killer acquisitions wind up killing productive innovation.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
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