Kill Zone / Sai Krishna Kamepalli, Raghuram Rajan & Luigi Zingales.

Format:

Book

Author/Creator:

Kamepalli, Sai Krishna, author.

Rajan, Raghuram, author.

Zingales, Luigi, author.

Series:

Working Paper Series (National Bureau of Economic Research) ; no. w27146.

NBER working paper series ; no. w27146

Language:

English

Subjects (All):

Industrial organization (Economic theory).

Physical Description:

1 online resource (47 pages) : illustrations (black and white).

Place of Publication:

Cambridge, Massachusetts : National Bureau of Economic Research, 2020.

Summary:

Venture capitalists suggest that incumbent internet platforms create a kill zone around themselves, where any competing entrant is acquired quickly. Consequently, financing new startups becomes unprofitable. We construct a simple model that rationalizes the existence of a kill zone. The price at which an acquisition is done depends on the number of customers the entrant platform can attract if it remains independent, which in turn depends on the number of apps that have adapted to the platform. The prospect of a quick acquisition by the incumbent platform, however, reduces the app designers' benefits from adaptation, making it harder for a technological superior entrant to acquire customers. This reduces the stand-alone price of the new entrant, decreasing the price at which they will be acquired, and thus reducing the incentives of VCs to finance their entry. We discuss the policy implications of this model.

Notes:

Description based on publisher supplied metadata and other sources.