It is possible to eliminate the competition in business by buying them out and shutting them down. Less choice for consumers and the loss of innovative and life-saving products are some of the consequences of that. Competition regulators in the US and EU have recently expanded their powers and are likely to scrutinize such acquisitions more closely.
The European Commission is now able to investigate a wider range of mergers and acquisitions. The US Federal Trade Commission changed its criteria for scrutinizing certain deals.
Business deals of a certain size have only been examined by these regulators. They will be able to look at almost any purchase.
Regulators have to navigate a world of costly and risky investments in research and development when applying these new powers to fast- moving industries. Many M&A deals can benefit consumers, even though it is difficult for regulators to spot a killer acquisition. It could stop new products from reaching the market if it's called wrong.
The fear of US and EU regulators is that if dominant players are allowed to buy up start-ups, this could affect innovation and market concentration. Several decades of consolidation across the economy has resulted in a lessening of competition, according to the FTC.
Research supports this view. EU regulators would like to be able to investigate and possibly prevent any acquisitions that may hurt consumers.
Competition regulators try to make sure that established firms don't destroy innovation by buying small innovative players, but killer acquisitions are one of their top concerns. The goal of the dominant firm in such a deal is to destroy a potential competitor to its own business even if it means patients never benefit from better treatments.
Changes to US and EU M&A scrutiny powers were triggered by a 2020 announcement by Illumina about its plans to acquire Grail. This kind of acquisition would not be subject to antitrust scrutiny.
The dominant market position of Illumina won't be affected by Grail's acquisition. The companies involved in the deal had a combined worldwide turnover of 5 billion.
Regulators in the US and EU objected to the merger. Both will scrutinize its impact on competition and innovation in the market for genome-based diagnoses.
Regulators worry about market concentration in this situation. If another start-up comes up with better diagnostic tests, a dominant player like Illumina might make it hard for it to protect its acquisition.
The most extreme case of this type of acquisition is killer acquisitions. A majority of pharma acquisitions involve a large company buying a smaller one with a promising new drug to stop the innovation.
There is a suspicion that dominant firms are pursuing a similar strategy. The UK Regulator ordered Facebook to sell Giphy for fear that it would be used to destroy a potential rival in the advertising market. Giphy hadn't sold a single ad in the UK when Meta began its appeal. Similar to pharma, few tech deals correspond to the definition of a killer acquisition. A common business model in the digital economy is firms buying start-ups before they make a profit.
The market for free online maps had a potential disruptor in the form of Waze. When it was acquired by Google, it did not close, as you would expect.
It kept the former as a niche product but added some innovative features to the map. This allowed the company to make more money from user information.
In this case, consumers benefited from a better product, but Waze has less incentive to innovate because it's not competing anymore The FTC did not object to the acquisition in the first place.
Start-ups will need to operate differently if regulators block them. Instead of relying on an acquisition by a dominant player to inject capital into the company, they will have to find other ways to make money.
When Facebook bought them for US$19 billion and US $1 billion, they had barely any revenue. They were acquired by a bigger platform. Both acquisitions increased marketconcentration.
Regulators are taking a huge bet by opening acquisitions of small and innovative firms. They need to show that an acquisition hurts innovation.
It's much harder to convince a judge that a deal is bad for consumers than it is to identify killer acquisitions. The future of medicine and the future of our digital lives are at stake.
There is a senior lecturer in economics at Lancaster University.
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