Antitrust Limits on Startup Acquisitions
Citation: Kevin A. Bryan, Erik Hovenkamp Antitrust Limits on Startup Acquisitions.
Model with leading incumbent, lagging incumbent, startups, and component innovations which may be licensed. Under regime without antitrust, leading incumbent acquires startups, startups create component innovations that enhance leading incumbent products, until leading incumbent becomes a pure monopoly and the prices it is willing to pay to acquire startups drops significantly.
Examine effects of blocking acquisition and compulsory licensing on diffusion, direction, and rate of startup innovation. Antitrust can maintain market contestibility, compulsory licensing more efficient when possible, because startup earns higher returns when it can sell to leader and leader is forced to license to laggard than when startup can only sell to laggard and laggard has option of licensing to leader.
Theoretical and practical relevance:
Blogged (author cited in paper) at https://digitopoly.org/2019/03/13/compulsory-licensing-is-better-than-blocking-acquisitions/