Merger Policy in Digital Markets: AnEx PostAssessment†

Abstract

This paper presents a broad retrospective evaluation of mergers and merger decisions in markets dominated by multisided digital platforms. First, we document almost 300 acquisitions carried out by three major tech companies—Amazon, Facebook, and Google—between 2008 and 2018. We cluster target companies on their area of economic activity providing suggestive evidence on the strategies behind these mergers. Second, we discuss the features of digital markets that create new challenges for competition policy. By using relevant case studies as illustrative examples, we discuss theories of harm that have been used or, alternatively, could have been formulated by authorities in these cases. Finally, we retrospectively examine two important merger cases, Facebook/Instagram and Google/Waze, providing a systematic assessment of the theories of harm considered by the UK competition authorities as well as evidence on the evolution of the market after the transactions were approved. We discuss whether the competition authority performed complete and careful analyses to foresee the competitive consequences of the investigated mergers and whether a more effective merger control regime can be achieved within the current legal framework.

M&A and early investment decisions by digital platforms

“…In this regard, there is an empirical observation in G &L that fits the empirical predictions of our model very well. Our model predicts that there will be killer acquisitions in the case of overlap between the incumbent’s and the startup’s target audience: indeed G &L find that belonging to the main income segment of the incumbent giant increases the probability of being discontinued after acquisition and their finding is confirmed also in similar empirical work by Argentesi et al ( 2021 ).…”

“…Merger policies on digital markets and digital platform ecosystems have been the focus of a recent and growing literature in economics, which highlights that guidance for competition authorities is particularly urgent in this sector. Most importantly, as highlighted in Parker et al ( 2021 ) and Argentesi et al ( 2021 ) among others, analyses that study antitrust policy from an ex-post perspective are at high risk of falling short in the fast-evolving digital platform ecosystem, where large network effects and big data advantage enhance concentration remarkably quickly. On the other hand, Cabral ( 2021 ) notes that “firm acquisition may be the simplest path for an incumbent to acquire the technology created by an entrant”: part of his paper, which cautions against the abuse of preemptive merger measures in digital ecosystems, highlights the important role of acquisitions as a form of technology transfer in digital industries and “when the entrant’s technology is a complement with respect to the incumbent’s assets, anticipated acquisition provides a significant innovation incentive”.…”

“…Successful platforms grow fast 1 and a remarkable volume of merger and acquisition (M&A) activities is observed in digital platform ecosystems (Motta, 2021 ; Cabral, 2021 ; Parker et al, 2021 ); most of these processes are initiated by large multisided platforms and target young and innovative startups (Gautier, 2021 ; Argentesi, 2021 ; Fons-Rosen, 2021 ). The intensity of M&A operations in this sector has been attracting the attention of academic literature and antitrust authorities alike, given that such activities can enhance efficiency but also be a threat to competition, so that predicting the overall effect on consumer welfare is far from straightforward.…”

Are industrial policy instruments effective?

“…), although the European Commission (2014 [25]) and OECD (2015 [3]) provide some best practices 3 . The microBeRD project seeks to close this gap by linking the effectiveness of R&D tax credits to their design features (Appelt, Galindo-Rueda and González Cabral, 2019 [26]).…”

“…While the impact is overwhelmingly positive for trade in intermediate inputs and new export opportunities, the effect of import competition, usually evaluated using the increase in Chinese exports since 2000, is mixed. Chinese competition increased patenting activity, IT investment and productivity in Europe (Bloom, Draca and Van Reenen, 2015[176]; Aghion et al, 2018[177]) 26 and patenting activity in Japan, although the quality of the additional patents seems to be low (Yamashita and Yamauchi, 2019[178]). However, the estimated impact is negative on patenting activity and R&D expenditures in the United States (Autor et al, 2020[179]).…”