Luigi Zingales, Global Virtual Seminar Series on Fintech
Date Aired: April 17, 2020
Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance
The University of Chicago Booth School of Business
Luigi Zingales is the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance (The University of Chicago Booth School of Business). He has held positions at National Bureau of Economic Research, the Center for Economic Policy Research, the European Governance Institute, Il Sole 24 Ore, and the Committee on Capital Markets Regulation. Professor Zingales co-developed the Financial Trust Index.
Paper: “Kill Zone”
We study why high-priced acquisitions of entrants by an incumbent do not necessarily stimulate more innovation and entry in an industry (like that of digital platforms) where customers face switching costs and enjoy network externalities. The prospect of an acquisition by the incumbent platform undermines early adoption by customers, reducing prospective payoffs to new entrants. This creates a “kill zone” in the start-up space, as described by venture capitalists, where new ventures are not worth funding. Evidence from changes in investment in startups by venture capitalists after major acquisitions by Facebook and Google suggests this is more than a mere theoretical possibility.