Uncertainty and Two Theories of Harm in Nascent Competitor Acquisitions

There are two principal theories of harm in nascent competitor acquisition cases: (1) loss of future competition between the acquirer and the target, and (2) loss of innovation. I argue that the loss of future competition theory is most applicable in cases where there is a high probability of significant future competition between the merging parties, that competition is relatively imminent, and market evolution is relatively predictable. Conversely, the innovation effects theory is more suitable for cases where the expected competition between the merging parties is relatively distant in time, market evolution is unpredictable, and innovation is an important part of the competitive process. The economic analysis of innovation effects requires a dynamic competition model. I discuss how economic tools based on dynamic competition models can be effectively applied in analyzing innovation effects of nascent competitor acquisitions.

By Jay Ezrielev^[1]

I. INTRODUCTION

Antitrust policy regarding nascent competitor acquisitions is one of the most contentious issues in antitrust. A nascent competitor is a firm that is not yet a significant competitor in the relevant market but may become one over time.[2] Lawmakers, antitrust scholars, practitioners, and enforcement agencies around the world are engaged in a heated debate about the correct analytical approach for these transactions. This debate misses a key point about nascent competitor acquisitions. Although authors and