Acquisition-induced kill zones

Christopher Teh (), Dyuti Banerjee and Chengsi Wang
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Christopher Teh: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Dyuti Banerjee: Monash university
Chengsi Wang: Monash university

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Abstract: We study how acquisitions by a dominant incumbent affect entry and R&D incentives in markets with multiple startups. We show that acquisitions can create a kill zone, which suppresses entry and distorts the innovation direction of nontargeted startups. The resulting reduced threat of entry may lead the incumbent to shelve the acquired technology. The kill zone effect strengthens targeted startups' incentives to enter primarily to be bought out and makes acquisitions more attractive to the incumbent than in-house R&D. To balance kill zone distortions to innovation against the potential synergies from acquisitions, a consumer welfare–maximizing merger policy may involve blocking some, but not all, acquisitions.

Keywords: Acquisition; Innovation; Startup; Merger policy; Remedy (search for similar items in EconPapers)
Date: 2026-05-12
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Published in Management Science, 2026, ⟨10.1287/mnsc.2024.07841⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05691158

DOI: 10.1287/mnsc.2024.07841

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