The "Kill Zone": Copying, Acquisition and Start-Ups' Direction of Innovation

The "Kill Zone": Copying, Acquisition and Start-Ups' Direction of Innovation

 

Massimo Motta

Universitat Pompeu Fabra

Sandro Shelegia

Universitat Pompeu Fabra, Department of Economics and Business, Students; Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR)

Abstract

The possibility of being acquired by the incumbent tends to push the rival towards developing a substitute rather than a complement. By choosing the former, potential gains from the acquisition are created (in the form of suppression of competition): as long as the rival has some bargaining power in the determination of the takeover price, it will then benefit from entering the "kill zone".