Cracking down on companies that invest money specifically to block their competitors actually hurts the economy by drastically reducing product variety.
April 1, 2026
Original Paper
Blocking the Blockers? Diversity Matters
SSRN · 6505498
The Takeaway
While defensive investments by big firms are usually seen as purely harmful to productivity, this model shows they also support the creation of diverse product lines. Forcing firms to stop these 'blocking' tactics would increase technical efficiency but would cause a loss in product variety so large it would offset 75% of the economic gains.
From the abstract
I study how firms’ defensive investments affect aggregate total factor productivity in a general-equilibrium model where incumbents invest both to raise productivity and to deter entry or imitation; entry occurs either by new firms into existing markets or by leading firms in entirely new product lines. Calibrating the model to US firm size, productivity, and market share distributions, I find that cracking down on defensive investments increases TFP by 1.9 percent, about three-quarters of which