Acquisitions Reduce Competition in Technology Markets

Mergers and acquisitions not only increase concentration in product markets and therefore reduce competition to the detriment of consumers, they also result in a bundling of important technologies of corporate acquirers. This can block the development of competing technologies in other firms. These are the findings of a study conducted by the Centre for European Economic Research (ZEW) Mannheim, which analysed 1,204 European M&A transactions between 1999 and 2003.

According to the study, corporate acquirers specifically identify technologies of target firms that could block technology competitors due to an existing patent. This can lead to a quasi-monopoly position of the company created by merging. Therefore, not only the competition in product markets, but also in the upstream technology markets is being reduced. Mergers thus contribute to preventing innovative technological designs of competitors to the detriment of consumers. While, in case of mergers, anti-trust authorities almost exclusively analyse the potential effects on product markets, the concentration in technology markets has hardly been considered systematically so far.

Furthermore, the study distinguishes between mergers carried out by strategic investors and mergers carried out by financial investors. Using this method, concentration effects of technologies could only be observed for strategic investors who systematically try to influence competition. Financial investors clearly show an overall interest in the technologies of the company, however, they are not interested in technologies that might block competitive technologies, because financial investors usually do not have their own technology portfolio and the target companies remain independent after acquisition. Financial investors, especially private equity investors, contribute to a share of around 30 to 50 per cent of worldwide M&A activities.

Contact

Prof. Dr. Christoph Grimpe, E-mail: grimpe@zew.de