They can still go bankrupt and company buys the assets without employees ever losing pay. Many bankruptcies work this way.
Would anyone ever invest in startups, in that scenario?
Consider: if it is as you're implying, that investors expect their returns to be realized mainly through acquisition, and if it's indeed common that startup acquisitions are done to kill a potential competitor, then... all the investors are doing is extorting large corporations. If you include IPO in the picture, they're also alternatively robbing the public.
If it's just rich getting richer by pulling money out of megacorps and large populations, then this is... literally the opposite of useful, valuable contribution to the society.
The way I see it, the above isn't 100% true, but it seems true in majority of cases, which makes me inclined to support the "M&A ban" idea.
Because they are expecting that the startup will turn into a profitable business, maybe?
Being acquired is very far from the only way that an investor can see returns.
And, hey, if the business is successful, you own part of a successful business.
I feel old and you goddamn kids better be off my lawn by the time I get back with the shotgun.
The way you do it is the way it's always been done historically: offer a value proposition that justifies the money. And don't offer it for free at the beginning. People rightfully get very angry if you change the deal after they've come to rely on your product or service.
I still am clueless as to how to generate a network effect without giving things away for free. And as you said, once it's free, it's expected to remain free
The cynical me says that some people are able to generate a network effect because of fame or because of an existing network to which they belong (i.e. being chosen at YC or published in a newspaper). For example, FB was promoted to death in all US campuses for free during the 2000s. I wonder how that happened (honest question)
Are we discussing drug cartels? Because this reads literally like it could apply only to a highly criminal business.
We're just talking about a situation where some existing large interests have a lucrative business peddling some pretty addictive stuff, and they want to make sure nobody else encroaches on their turf. To that end, they're willing to spend a lot of money to "make the problem go away". Sometimes that means bringing the upstarts into the fold!
Not at all like drug cartels.
Sometimes it means asking the upstarts to say hello to your little friend.
little fish companies will be less likely to go out of business, and the economy will be more agile when they do if we stop allowing these big fat catfish to swallow everything in their pond.
Not necessarily.
In fact, based on my experience I'd wager that in the bulk of the cases a bankruptcy would be far simpler from a paperwork perspective (but harder on the creditors).