Digital (Killer?) Acquisitions
By Florian Ederer, Regina Seibel, and Timothy Simcoe
This article investigates how acquisitions of startups by major technology companies like Amazon, Apple, Google, Microsoft, and others affect innovation. Contrary to common concerns that such acquisitions might “kill” innovation by stifling competition, the study finds that these deals often happen in areas where the big firms are already active and are not followed by any decline in patenting. By examining detailed patent and workforce data, the authors show that innovation usually rises before an acquisition and continues afterward, particularly when multiple acquisitions occur in the same technology space. The research also reveals that patents acquired in these deals receive significantly more citations, a sign that their influence and visibility increase in the broader technology ecosystem.
The study also uncovers interesting insights about what happens to the employees of acquired startups: on average, more than half leave within three years after acquisition. Surprisingly, the boost in innovation impact is smaller when more employees are retained, suggesting that knowledge often spreads when employees move on to other firms, sharing the acquired technology beyond the acquiring company. Overall, the findings challenge the notion that big tech acquisitions inherently suppress innovation, instead indicating that many acquisitions help diffuse cutting-edge ideas and technologies more widely. This has important implications for policymakers concerned about the competitive effects of digital mergers.