Merger Policy for Platforms: AGrowthTheory Perspective

Abstract

Should Big Tech firms be banned from acquiring other firms? We address this question by developing a growth model with platform-based consumption. The platform supplies some products in the economy, and startups supply the rest, with the platform intermediating consumption of all goods in the digital sector. Acquisitions increase the platform’s product offerings and have competing effects on the entry of new startups. Theoretically, an acquisition ban reduces growth in the short run but may increase it in the long run. Calibrating the model to data on U.S. households’ time use on digital platforms suggests a small welfare loss from a complete acquisition ban due to slower growth in both the short and long run.