Antitrust enforcement slows innovation – tech acquisition motivates startups, big tech drives R&D, and a strong antitrust environment creates fear to innovate

But while such acquisitions could have the effect of eliminating a potential threat to a large company down the road, taking too hard a stance against the practice could also stifle innovation, he said. When the rate at which companies are merging or making acquisitions is high, the chances a startup will get bought is also higher and the incentive for more entrepreneurs to launch one and begin to innovate follows suit.

“You’re trying to protect consumers by regulating, but then you can end up taxing innovation,” Van Reenen said. “The big companies say the reason we innovated so much is because of the rewards we expect to get, and if you basically start taking that away—taking away our intellectual property, it’s going to reduce our incentives to invest or for the next wave of entrepreneurs to come along.”

Schmalensee agreed: Closer scrutiny leads to higher levels of caution throughout an organization, and “being careful up and down an organization stifles innovation.”

One way to approach the problem would be to shift the burden of proof that a merger or acquisition would benefit consumers and innovation to the company, rather than asking the antitrust authorities to prove it would not, Van Reenen said. In any case, the outcome is determined by whether the acquisition gives the smaller firm access to better resources, technology, and financing, or if the increased bureaucracy of a larger company blunts that firm’s motivation to innovate, Van Reenen said. Still, large tech companies are among the heaviest investors in new product development. Amazon invested more than $16 billion—the highest of any major company in the world—in research and development in 2017, while Alphabet, Inc., Google’s parent company, reinvested nearly $14 billion.