Seminar – Shelving or Developing? The Acquisition of Potential Competitors Under Financial Constraints

Massimo Motta, Professor of Economics, Catalan Institution for Research and Advanced Studies (ICREA), Universitat Pompeu Fabra (UPF)

In our paper, a startup may lack the necessary assets to obtain external funding and thus to develop further a project which (if successful) might disrupt the incumbent’s monopoly. A takeover by the incumbent may be anti-competitive because it could eliminate a potential competitor and/or because it could suppress project development. But it may also be pro-competitive, for instance if the startup has insufficient assets and the incumbent (which has plenty of them) has an incentive to develop the project. Further, if investors anticipate that a takeover may take place, they could finance the startup relying on the incumbent to take over its obligations. Finally, the expectation of the acquisition may also stimulate the startup’s innovation in the first place. We show that the takeover is more likely to be detrimental to consumers when the probability of success of the project is low (because the incumbent is less likely to develop it after an acquisition) and when the economy is characterised by an efficient financial market (because absent the merger, the startup would be more likely to obtain funding).

Speaker bio

Massimo Motta (European Doctor in Quantitative Economics, 1991) is Research Professor at ICREA – Pompeu Fabra University, and at the Barcelona Graduate School of Economics. He previously held positions at the European University Institute (where he was also Head of Department) and the University of Bologna. He was also Dean of the Barcelona GSE from 2010 to 2013.

He served as Chief Competition Economist of the European Commission from 2013 to 2016, and he is currently President-Elect of the European Association of Researchers in Industrial Economics (EARIE).

Professor Motta’s main areas of research are industrial organisation and in particular competition policy. His work, widely cited and influential, has been published in the top international economic journals. His book on Competition Policy: Theory and Practice (Cambridge University Press, 2004) is the standard international reference on the economics of antitrust, and is used by teachers, scholars, and practitioners all over the world. He has recently published a new book on Exclusionary Practices: the Economics of Monopolisation and Abuse of Dominance (Cambridge University Press, 2018) with Chiara Fumagalli and Claudio Calcagno.