Innovation and Startup Acquisition

Marc Bourreau and Axel Gautier

No 11569, CESifo Working Paper Series from CESifo

Abstract: In this paper, we consider two platforms that compete for the development of a new product to integrate into their ecosystems. The new product can be developed either inhouse by the platforms or by an independent startup active only in the technology market. The presence of the startup affects the platforms’ R&D efforts through an insurance effect, which reduces the cost of failure in innovation, and a competition effect, which diminishes the returns to innovation. The magnitude of these effects depends on the attitude of the competition authorities towards the acquisition of the startup by one of the platforms. We show that allowing acquisitions stimulates platform innovation, but at the cost of a more concentrated market structure. We also compare the funding of the startup by independent venture capitalists or by the platforms themselves, and investigate how the merger regime influences the direction of the startup’s innovation.

Keywords: innovation; startup acquisitions; mergers; digital; big tech; competition policy (search for similar items in EconPapers)
JEL-codes: D43 G34 K21 L40 L86 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-com, nep-ent, nep-ind, nep-ino, nep-law, nep-mic, nep-pay, nep-reg and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11569

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