Gathering round Big Tech: how the market for acquisitions reinforces regional inequalities in the US

Maryann Feldman, Frederick Guy, Simona Iammarino and Carolin Ioramashvili

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase. We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.

Keywords: tech giats; market power; start-ups; acquisitions; regional inequality (search for similar items in EconPapers)
JEL-codes: R12 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021-05-01
New Economics Papers: this item is included in nep-com, nep-ent, nep-geo, nep-hme and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:110718

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