Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Acquisitions to Enter New Markets
Journal of Economic Perspectives
(pp. 53–76)
(Complimentary)
Abstract
How should antitrust enforcers treat acquisitions by successful firms to enter new markets? Should a major pharmaceutical company with an extensive sales and distribution network be permitted to acquire a popular drug that does not compete against any of the drugs it already owns? Throughout American economic history, expansion by successful firms into new markets has played a vital role in promoting competition and spurring economic growth. However, acquisitions to enter new markets also can harm competition by enabling monopolists to enlarge their empires. The 2023 Merger Guidelines break new ground by announcing that the US antitrust agencies will challenge mergers and acquisitions that "could enable the merged firm to extend a dominant position from one market into a related market," but they say very little about how such acquisitions will be evaluated. This article explains how antitrust enforcers can use economic evidence and theory to distinguish between acquisitions to enter new markets that are harmful and those that are beneficial.Citation
Shapiro, Carl. 2025. "Acquisitions to Enter New Markets." Journal of Economic Perspectives 39 (1): 53–76. DOI: 10.1257/jep.20241414Additional Materials
JEL Classification
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- G38 Corporate Finance and Governance: Government Policy and Regulation
- K21 Antitrust Law
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope
- L40 Antitrust Issues and Policies: General
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology