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Working Paper

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A nascent competitor is a firm whose prospective innovation represents a serious, albeit uncertain, future threat to an incumbent. An incumbent’s acquisition or exclusion of such firms presents a challenge for antitrust law, because while nascent competitors often pose a uniquely potent threat to an entrenched incumbent, the firm’s eventual significance is uncertain, given the environment of rapid technological change in which such threats tend to arise. As we explain, nascent competition merits protection even where successful competitive entry is highly uncertain. In evaluating the incumbent’s conduct, evidence of intent, as revealed through testimony, documents, or conduct that would be unprofitable absent the elimination of a rival, takes on heightened importance.

Protecting nascent competition from anticompetitive acquisitions sometimes requires after-the-fact scrutiny of the transaction. There are costs to waiting but also benefits, including the revelation of critical information that was previously unavailable. Acquisitions by a dominant firm can be examined under ordinary merger law or instead as unlawful maintenance of monopoly, an approach that has several advantages. Ultimately, blocking anticompetitive acquisitions of nascent competitors is far from a general ban on deals between startups and incumbents. To the contrary, our suggested approach would discourage, at most, acquisition by the firm most threatened by a nascent rival.