Big Tech Acquisitions

Luis Cabral

No 18272, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I develop and calibrate a game of startup innovation, incumbent acquisition and merger review, with a focus on industries with uncertainty about the nature of the entrant (complementor or substitute with respect to the incumbent). I estimate that moving from balance of probabilities (the current US and EU system) to balance of harms (proposed for, though not adopted, in the UK) leads to a 15% welfare increase. A complete ban on mergers, in turn, would imply a 35% welfare decrease. No enforcement at all is not significantly different from balance of probabilities. Finally, committing to a more lenient standard than balance of harms increases welfare: under balance of harms, about 25% of all mergers would be blocked, whereas the optimal threshold would lead to only 15% of all mergers being blocked, which in turn would imply an additional 2% increase in welfare. The ordering of proposals is very robust to changes in key parameters. I consider some extensions of the basic framework, including reverting the burden of proof of pro-competitive effects.

Keywords: Mergers and acquisitions; Merger policy; Digital platforms (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2023-07
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