Paper Competition Enforcement and Accounting for Intangible Capital

Antitrust laws mandate review of mergers and acquisitions (M&A) when the book value of acquired assets exceeds a specified threshold. However, these policies overlook the fact that accounting standards do not allow firms to recognize most intangible capital as assets. We show this omission leads to thousands of acquisitions of intangible capital-intensive firms being nonreportable to antitrust authorities. Acquirers in nonreportable deals achieve higher equity values and price markups, especially when consolidating overlapping product markets. We also show nonreportable deals in pharmaceutical markets are about three times more likely to consolidate overlapping drug projects and acquirers are 40% more likely to terminate these overlapping projects. Our results suggest the growth of intangible assets may exacerbate market power through nonreportable consolidation of the sectors most concerning for consumers.

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