Killer acquisitions

Cunningham, C M, Ederer, F and Ma, S (2021) Killer acquisitions. Journal of Political Economy, 129 (3). pp. 649-702. ISSN 0022-3808

Abstract

This paper argues incumbent firms may acquire innovative targets solely to discontinue the target’s innovation projects and preempt future competition. We call such acquisitions “killer acquisitions.” We develop a model illustrating this phenomenon. Using pharmaceutical industry data, we show 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 due to weak competition or distant patent expiration. Conservative estimates indicate 5.3 percent to 7.4 percent of acquisitions in our sample are killer acquisitions. These acquisitions disproportionately occur just below thresholds for antitrust scrutiny.

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Item Type: Article
Subject Areas: Strategy and Entrepreneurship
Additional Information:

© 2021 University of Chicago.  Accepted for publication by Journal of Political Economy on 11/05/2020

Date Deposited: 19 Jan 2021 15:20
Date of first compliant deposit: 15 Jan 2021
Subjects: M > Mergers and acquisitions
C > Competition
Last Modified: 07 Sep 2021 00:21
URI: https://lbsresearch.london.edu/id/eprint/1632
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