As the major tech firms have become bigger there has been growing concern that it has become more and more challenging for startups to operate in any field within the “forcefield” of those firms without them being bought out of existence.

The situation has attracted the attention of regulators and policymakers who are keen to avoid anti-competitive and anti-trust situations, with this resulting in an executive order from President Biden and a congressional report accused the big tech firms of engaging in so-called “killer acquisitions”, whereby smaller firms are bought up in order for any threat they posed to be quashed.

Killer acquisitions

The orders were based on Yale research into the pharma industry where they highlight the prevalence of the practice.  It’s a finding they believe applies equally to any R&D-intensive sector, however, where there is a considerable risk of disruption by new entrants.

The study found that there was scant evidence that acquisitions were done in order to acquire talent or expertise, which was particularly interesting given the huge importance placed on talent in the sector.  All of which leaves the desire to prevent startups from threatening the market position of incumbents.

It’s a scenario the authors believe could have a number of adverse effects on consumers.  For instance, the lack of competition is likely to have an obvious impact on the range and price of offerings to consumers, with price rises quite likely when the number of alternatives is lower.

There is also likely to be an impact in terms of the quality and variety of products available to consumers, while the authors also argue that a lack of competition could have implications in areas such as privacy.

They also remind us that while killer acquisitions grab the headlines, it’s also common for companies or projects to be acquired and then starved of the resources required to thrive, so they simply wither on the vine instead.

Although it is still very early days in terms of the effectiveness of the executive order, the researchers believe it may prove effective in curbing the predatory practice and help to create fairer competition.  Their confidence is rooted in the fact that the order prompts all of government to focus on the issue rather than just antitrust teams, which alongside the fact that it has a broad remit and covers all sectors should give it plenty of scope to intervene in a practice the government finally acknowledges impedes competition.