Startup acquisitions and merger policy

Key Points The prevalence of killer acquisitions is likely overstated, even from a purely theoretical perspective, as the replacement effect that they rely on often fails to hold. Despite claims by advocates of more lenient merger control, the prospect of acquisition does not necessarily induce startups to increase their investment in, or likelihood of pursuing, more disruptive innovation. Welfare-maximizing merger policy must adopt a dynamic perspective, balancing short-term competitive harms against long-term incentives for choosing more disruptive innovation directions. We provide practical recommendations for the design and enforcement of merger control involving innovative startups.