Killing Innovation?: Antitrust Implications of Killer Acquisitions

Killer instinct is a key business asset. Firms live and die by their strategic choices, and the desire to outcompete rivals colors most business decisions. While many firms strive to win market share on their merits, economists have recently identified an anti-competitive practice—killer acquisition—that enables incumbents to maintain market share by burying, rather than beating, rival technologies. In these acquisitions, firms buy competitors to prevent market cannibalization, preserving profits at a price that is right for both the acquirer and the target. This Article examines suspected killer acquisitions in the pharmaceutical industry, where the practice has been empirically studied, and envisions ways in which antitrust law can address them. Drawing on recent evidence suggesting that few factors are either necessary or sufficient to identify a killer acquisition, this Article argues that neutral to procompetitive motivations predominate for enough overlapping acquisitions that heightened review is unlikely to prevent killer acquisitions from occurring, while raising costs for all legitimate transactions. This Article also expands on the ongoing debate around killer acquisitions by considering the probable prevalence of killer acquisitions outside the pharmaceutical industry and notes structural factors that promote these acquisitions. Through comparison with another anti-competitive crutch the pharmaceutical industry has been known to lean on—reverse settlements with generic manufacturers—this Article further proposes rule of reason review as the appropriate standard for overlapping acquisitions. While anti-competitive mischief may sneak through under this standard, current evidence does not suggest that firms are getting away with murder, at least where consumer welfare is concerned.