In 2004, Manchester United signed 18-year-old Wayne Rooney from Everton for a record fee, strengthening a dominant club while stripping a smaller rival of its brightest prospect. This familiar football dynamic, where powerful players buy up emerging talent to stay on top, is now reshaping the global technology industry, with major consequences for competition and innovation. 

The ‘kill zone’ effect 

In a new paper published in Industrial and Corporate Change, my co-authors Heli Koski (ETLA Economic Research), Otto Kässi (ETLA and Aalto University), and I provide causal evidence that acquisitions by six major US technology companies, Google, Apple, Facebook, Amazon, Microsoft, and IBM) create what we call a “kill zone” in startup industries. Just as Manchester United’s acquisition of Rooney signalled to other clubs that competing for top talent would be futile, tech giants’ acquisitions appear to discourage new market entrants and reduce venture capital investment in affected sectors. 

Using data from Crunchbase covering more than 740 product markets between 2003 and 2021, we found that after a tech giant acquires a company in a particular market, both the rate of new startup formation and the flow of venture capital funding to that market decline significantly. In the United States, VC investment in affected markets was 6 times lower than in similar markets without tech giant acquisitions. In Europe, the decline was smaller, but still considerable, with nearly 60%. 

The implications of these findings extend beyond competition economics – they speak directly to ongoing debates about digital sovereignty, the future of the European startup ecosystem, and whether current antitrust tools are adequate for the digital age. 

The football transfer market analogy 

The parallel between tech acquisitions and football transfers illuminates why this matters. When a dominant Premier League club acquires a promising young player, three things typically happen: first, the selling club receives a financial premium, which is a short-term benefit that gives it an edge in the current season and immediate financial planning. Secondly, however, it loses a valuable asset in the long-run. Thirdly, this sale might have implicit effects on other small clubs: they might become incentivised to sell their own talent to keep up financially with their immediate league competition (i.e., the selling club) and hence do not invest in long-term player development and retention. In the long run, all of this leads to the league becoming less competitive overall. 

The tech industry works similarly, but here the outcome is more severe: the economy becomes less innovative because some of the most promising businesses do not grow enough to challenge market incumbents. 

When Facebook acquired Instagram for $1 billion in 2012, or when Google purchased YouTube for $1.6 billion in 2006, these weren’t just business transactions; they were strategic moves that reshaped entire markets. Our research suggests that such acquisitions send a signal throughout the startup ecosystem: venture capitalists become less willing to fund startups that might compete with dominant platforms, and entrepreneurs become less likely to enter markets where giants have demonstrated their willingness and ability to acquire competitors. Instead, the startup industry orients itself to produce companies that can be bought by giants: the famous exit many young entrepreneurs are looking towards. 

Consider what happens differently in football and technology, however. In football, there are regulations: transfer windows, financial fair play rules, and governing bodies that can intervene when competition becomes too imbalanced, and still, top-level football has become dominated by a few clubs backed by billionaires.  

In the technology sector, most startup acquisitions fall below the thresholds that trigger regulatory review, allowing dominant firms to systematically acquire potential competitors largely without scrutiny. 

Why this matters for the European startup ecosystem 

The data reveals a geographical pattern in line with our football analogy: over 70% of tech giants’ acquisitions targeted North American companies (the giants’ home market), but another 15% to 20% of all deals targeted European startups (see the figure below). 

FIGURE 1: The startup acquisitions of six US tech giants between 2003 and 2021.  

The effects of these acquisitions extend globally. When a tech giant enters a product market anywhere, it affects startup formation and investment worldwide, including in Europe. 

This creates a troubling dynamic for European digital sovereignty. European startups increasingly find themselves between a rock and a hard place: they can either compete against well-resourced US tech giants (a daunting prospect), seek acquisition by those same giants (thereby transferring European innovation to American ownership), or struggle to attract the venture capital needed to scale independently (as VC funding for Series C+ investments is notoriously sparse in Europe). 

The recent wave of AI-related acquisitions and partnerships (Google’s $32 billion purchase of Wiz, Microsoft’s deep integration with OpenAI, Amazon’s partnership with Anthropic) suggests this pattern is accelerating precisely in the technologies most likely to shape the next decade of digital innovation. 

Policy implications beyond merger control 

Our research highlights a critical gap in current competition policy frameworks. Existing merger control mechanisms, both in the US and the EU, were designed for an era when the competitive significance of an acquisition could be judged by the companies’ revenues. But in digital markets, the strategic value of an acquisition often lies in eliminating potential future competition – a concern that current thresholds fail to capture. 

The European Commission’s Digital Markets Act, effective since November 2022, requires large tech companies to report acquisitions involving digital market participants. However, it lacks the authority to directly intervene in these deals. Meanwhile, the recent European Court of Justice ruling in the Illumina/GRAIL case has limited the Commission’s ability to review mergers that bypass national thresholds, further constraining regulators’ reach. 

Still, several policy approaches are worth considering to possibly change things. Transaction-value thresholds, already implemented in Germany and Austria, could capture strategically significant acquisitions that current revenue-based thresholds miss. Shifting the burden of proof to dominant firms to demonstrate that early-stage acquisitions will not harm competition – as proposed by Nobel laureate Jean Tirole – offers another avenue. And strengthening support for European startup ecosystems through public procurement of innovative products, fund-of-funds models, and quality-signalling grants could help promising companies scale independently of acquisition exits. 

The stakes for Europe’s digital future 

The broader question our research raises concerns the kind of digital economy Europe wants to build. If tech giants can systematically acquire or deter potential competitors, the result may be an innovation ecosystem that produces incremental improvements to existing platforms rather than the disruptive innovations that challenge incumbent dominance, which are needed for European digital sovereignty. 

For European policymakers, the football analogy offers a useful frame. European football has thrived not by preventing transfers entirely, but by creating rules that maintain competitive balance: salary caps, financial fair play, and redistribution mechanisms that allow smaller clubs to remain viable competitors. The digital economy needs equivalent mechanisms. 

As debates about digital sovereignty intensify and Europe considers how to position itself in the AI era, understanding how dominant firms maintain their position – and what can be done about it – becomes essential. Our research suggests that the acquisition strategies of tech giants do not just affect the companies involved; they reshape entire innovation ecosystems in ways that may take years to become fully apparent. 

The question is whether policymakers will act before the ‘kill zone’ becomes permanent. 

You can read the full paper, “Killers on the road of emerging start-ups: implications for market entry and venture capital financing”, authored by Heli Koski, Otto Kässi, and Dr Fabian Braesemann, published in Industrial and Corporate Change.