Killer Acquisitions
Colleen Cunningham (London Business School)
Florian Ederer (Yale School of Management)
Song Ma (Yale School of Management)

Abstract : Firms may acquire innovative targets to discontinue the development of the targets' innovation projects in order to preempt future competition. We call such acquisitions ``killer acquisitions.'' We develop a parsimonious model and provide empirical evidence for this phenomenon in drug development by tracking detailed project-level development histories of more than 60,000 drug projects. We show theoretically and empirically that acquired drug projects are less likely to be continued in the development process, and this result is particularly pronounced when the acquired project overlaps with the acquirer's development pipeline and when the acquirer has strong incentives to protect its market power. We also document that alternative interpretations such as optimal project selection, organizational frictions, and human capital and technology redeployment do not explain our results. Conservative estimates indicate that about 7% of all acquisitions in our sample are killer acquisitions and that eliminating their adverse effect on drug project development would raise the pharmaceutical industry's aggregate drug project continuation rate by more than 5%. These findings have important implications for antitrust policy, startup exit, and the process of creative destruction.

Transaction Costs and Coasean Symmetry in 5g Spectrum Allocation Policy,
Thomas Hazlett (Clemson University)

Abstract : There are distinct strategies to make spectrum available for 5G. The U.S. plan creates three overlapping access regimes for the 3.55 – 3.7 GHz band: ¥ incumbent Fixed Satellite Services (FSS) with reception rights fixed and immutable; ¥ Priority Access Licenses (PALs) delivering exclusive rights of access (secondary to incumbent FSS users) and sold at auction, but in very small geographic areas (Census Tracts) and for very short terms (2-3 years); ¥ unlicensed, non-exclusive access rights (GAA) regulated by power limits and exclusion zones. The tri-level scheme is advanced by Paul Milgrom, Eric Posner, and others as a major improvement over standard property bundles, eliminating transaction costs and monopoly hold-ups. But the proffered “market failure” and its asserted policy fix mimic the Pigouvian welfare analysis that Coase famously revealed to be a product of asymmetric assumptions. Meanwhile, EU policy seeks to auction unencumbered, nationwide, long-lived, liberal licenses granting exclusive access to 3.4 to 3.8 GHz. This property approach reduces borders and, therefore, transaction costs. A comparison of the evolving systems should test the theoretical arguments made for narrow v. broad resource ownership rights. That the applications are nested in wireless markets yields historical continuity in Coasean thinking about property rights and public policy.

The Problem of Antitrust "nostalgia": Market Definition, Barriers to Entry, and Network Effects in High-tech Markets
Geoffrey A. Manne (International Center for Law & Economics)
Pinar Akman (University of Leeds School of Law)

Abstract : All platforms are not created equal. And the first key to properly assessing competitive effects in high-tech platform markets is to do so in a manner that takes account of actual competitive dynamics. Among other things, this means taking account of complex and shifting markets, actual competitive constraints, the unique consequences of network effects, the role of data and advertising, and other important at-tributes of high-tech, online, platform competition. Accommodating today’s high-tech markets in antitrust enforcement does not necessitate a wholesale overhaul of well-established legal and economic principles of antitrust. But it does require a shift in the understanding of the nature of competition to ensure that those principles further, rather than impair, social welfare. The most significant risk confronting antitrust enforcers, courts, practitioners and scholars today is the use (and potential abuse) of standard antitrust tools to overly preference the status quo, which is unlikely to be optimal — least of all in high-tech industries characterized by rapid and jarring change. As our paper will discuss in detail, too often it is some kind of change from established practice that precipitates antitrust complaints and undergirds enforcement. But in high-tech industries, change is the hallmark of competition. Moreover, it is precisely in the situation of allegedly anticompetitive innovation (i.e. change) that intervention may be more likely, despite being exactly what we want and expect from competition. This is the “nostalgia bias” in antitrust. Antitrust is (often) too quick to hold that because a practice has benefited competition before, changing it will harm competition going forward. Paradoxically, excessive concern for the quite-possibly costly, static effects of innovation — business model change, product design change, price change — on current users or competitors can harm welfare overall.