This month’s CLIP (available here) is a short article from Frontier Economics on proposals aimed at dealing with the risk of “killer acquisitions”. Killer acquisitions arise where market-leading firms acquire smaller innovative competitors to prevent them from becoming effective challengers (see here and here for further discussion). This article considers the implications of two recent proposals:

1. A proposal in the Furman report to the UK government that there should be a move to a “balance of harms” regime that would take into account the potential severity of the harm caused by a merger as well as the likelihood that the harm would materialise (the focus of the current regime being on the latter).
2. A proposal in a report commissioned by the European Commission that there should be a move to an “error-cost” framework under which competition authorities would seek to minimise the expected cost of making an erroneous decision about whether to block or permit a merger.

Whilst acknowledging the potential merits of the above proposals, the author of this article explores some of the risks. In particular, the author raises concerns regarding the practicality of such proposals, as well as the potential downsides (particularly for innovation) in altering the balance in such a way that it is presumed that mergers involving the acquisition of small start-ups are anticompetitive. This article provides a useful rundown of the economic issues in this area.