Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints

Chiara Fumagalli (), Massimo Motta () and Emanuele Tarantino
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Chiara Fumagalli: Università Bocconi, CSEF and CEPR, https://csef.it/people/chiara-fumagalli/

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: A start-up and an incumbent negotiate over an acquisition price under asymmetric information about the start-up's ability to succeed in the market. The acquisition may result in the shelving of the start-up's project or the development of a project that would otherwise never reach the market because of financial constraints. Despite this possible pro-competitive effect, the optimal merger policy commits to standards of review that prohibit high-price takeovers, even if they may be welfare-beneficial ex post. Ex ante this pushes the incumbent to acquire startups lacking the financial resources to develop independently, and increases expected welfare.

Keywords: Optimal merger policy; selection effect; nascent competitors. (search for similar items in EconPapers)
JEL-codes: K21 L13 L41 (search for similar items in EconPapers)
Date: 2022-02-09
New Economics Papers: this item is included in nep-com, nep-law and nep-mic
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Shelving or developing? The acquisition of potential competitors under financial constraints (2022)
Working Paper: Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints (2020)
Working Paper: Shelving or developing? The acquisition of potential competitors under financial constraints (2020)
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