5.4 C
London
Sunday, December 4, 2022

New plans to prevent tech giants from buying smaller rivals threaten future innovations

Must read

Adrian Zmed- Wiki, age, height, net worth, wife, ethnicity

Adrian Zmed is an American actor, singer and television personality best known for his performance as Nogerelli in the movie "Grease 2". He...

Laurie Holmond – In the life of Snoop Dogg’s ex-girlfriend

Laurie Holmond is the ex-girlfriend of the popular American rapper Snoop Dogg. Her ex-partner Snoop is a famous rapper best known for his...

NC power outage investigated as ‘criminal event’

Authorities were investigating widespread overnight power outages in south-central North Carolina as deliberate criminal acts, the Moore County sheriff said in a statement late...

Salesforce CEO Succession Drama and Other TC News • londonbusinessblog.com

This week I talk to Rita Liao about the great wall of porn obscuring information about protests in China. And Ron Miller returns...
Shreya Christinahttps://londonbusinessblog.com
Shreya has been with londonbusinessblog.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider londonbusinessblog.com team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

One way to eliminate competition in business is to simply buy them out and shut them down. And that means less choice for consumers and sometimes loss of innovative and, in the case of the pharmaceutical industry, even life-saving products. But such so-called killer takeovers are likely to be viewed more critically in the US and EU following a recent expansion of competition regulators’ powers.

A July 2022 ruling from the European Court of Justice has: extensive the European Commission’s ability to investigate a wider range of mergers and acquisitions (M&A). And last year the US Federal Trade Commission (FTC) changed the criteria for research certain types of deals.

Historically, these regulators were only authorized to investigate business deals of a certain size, usually between potential direct competitors. These recent statements will allow them to research almost any purchase.

Sign up for the TNW Conference newsletter

And be the first in line for ticket offers, event news and more!

However, in applying these new powers to rapidly changing industries such as pharmaceuticals or technology, regulators must navigate a world of expensive and risky investments in research and development. It’s very difficult for regulators to spot a killer takeover before it happens, and many mergers and acquisitions can actually benefit consumers. So if you call it wrong, it can nip innovation in the bud and prevent new products from entering the market.

US and EU regulators share the same fear: Allowing dominant players to buy up startups could affect innovation and market concentration, depriving consumers of the benefit of new products and technology. In announcing its new approach, the FTC said that “several decades” of consolidation in the economy corresponded to a “reduction in competition manifested in rising profit margins and shrinking wages.”

There is Research to support this view. likewise, EU regulators want to investigate – and possibly prevent – acquisitions that they believe can harm consumers.

Killer Acquisitions

When competition regulators try to ensure that incumbents that buy small innovative players don’t hinder or even destroy innovation, one of their biggest concerns is great acquisitions. As documented in a influential economic newspaper as far as the pharmaceutical industry is concerned, the dominant company’s goal in such a deal is to destroy a potential competitor to its own company, even if it means patients never benefit from better treatments.

The recent changes to US and EU mergers and acquisitions control powers were triggered by a 2020 Announcement by US biotech company Illumina about its plans to acquire Grail, a developer of early-detection cancer tests. At the time, this sounded like the kind of takeover that wouldn’t get much attention from the competition authorities.

Grail’s product is not yet operational and its acquisition will not affect Illumina’s dominant market position. The deal did not even cross the EU Merger Regulation threshold of €5 billion (£4.3 billion) of combined global sales for the companies involved.

Almost immediately, however, regulators in the U.S and the EU opposed the merger. Both announced plans to explore its potential impact on competition and innovation in the genome-based diagnosis market.

In situations like this, regulators often worry about market concentration. If another start-up comes up with better diagnostic tests, for example, a dominant player like Illumina… make life difficult to protect the recent takeover.

But killer takeovers are the most extreme case of this kind of takeover deal. Research shows that in only about 6% of pharmaceutical acquisitions, a large company buys a smaller company with a promising new drug, simply to end the innovative project.

In digital markets, dominant companies are also often suspected of pursuing a similar strategy. Last year, the British regulator ordered Facebook to give Giphy. to sella database of GIF-like animations it had acquired in 2020 for US$315 million (£262 million), fearing it was a cutthroat takeover aimed at destroying a potential rival in the advertising market. When Meta appealed this decision in April 2022, Giphy sell one more ad in the United Kingdom. Just like in the pharmaceutical sector, but few tech deals seem correspond to the specific definition of a killer acquisition. And in fact, dominant companies that buy innovative start-ups before they generate profits is a common business model in the digital economy.

In 2013, Waze was a potential disruptor for Google Maps as the dominant company in the free online maps market. But when Google has taken over at US$1.1 billion, it didn’t shut down Waze as you’d expect with a great acquisition.

Instead, it added some of Waze’s innovative features to Google Maps and kept the first as a niche product. This allowed Google to remain dominant and to increase his profit from user data.

In this case, consumers benefited from a better Google Maps product, but Waze now has less incentive to innovate because it no longer competes. The FTC did not oppose the takeover in 2013 but is now reportedly considering looking at it again.

Big gamble from regulators

If regulators routinely block such takeovers, start-ups will have to act differently. Rather than relying on a takeover by a dominant player to inject capital into the business, they will have to find other ways to make money – possibly by charging consumers directly.

whatsapp and Instagram, for example, had almost no revenue when Facebook bought them for $19 billion and $1 billion, respectively. But they benefited from the acquisition by a larger platform. Neither were killer takeovers, but both allowed for greater market concentration.

By opening up acquisitions of small and innovative companies to greater scrutiny, regulators are taking a huge gamble. To block a takeover, they have to demonstrate that it harms innovation, often in highly technical areas.

While researchers were able to identify killer purchases afterwards, and convince a judge at the time of purchase that a deal is bad for consumers is much more difficult. As such, the stakes are high for regulators: one wrong decision could affect the future of medicine and the future of our digital lives.

Article by Renaud FoucartAssociate Professor of Economics, Lancaster University Management School, University of Lancaster

This article was republished from The conversation under a Creative Commons license. Read the original article.

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article

Adrian Zmed- Wiki, age, height, net worth, wife, ethnicity

Adrian Zmed is an American actor, singer and television personality best known for his performance as Nogerelli in the movie "Grease 2". He...

Laurie Holmond – In the life of Snoop Dogg’s ex-girlfriend

Laurie Holmond is the ex-girlfriend of the popular American rapper Snoop Dogg. Her ex-partner Snoop is a famous rapper best known for his...

NC power outage investigated as ‘criminal event’

Authorities were investigating widespread overnight power outages in south-central North Carolina as deliberate criminal acts, the Moore County sheriff said in a statement late...

Salesforce CEO Succession Drama and Other TC News • londonbusinessblog.com

This week I talk to Rita Liao about the great wall of porn obscuring information about protests in China. And Ron Miller returns...

Smoodi closes $5 million to expand reach for its robotic smart blender • londonbusinessblog.com

Smoodi wants to see its smoothies in the hands of, well, everyone, and a new infusion of capital and distribution partnership has the startup...