Mark Glick, Catherine Ruetschlin and Darren Bush ‘Big Tech’s Buying Spree and The Failed Ideology Of Competition Law’ (forthcoming, Hastings Law Journal)

Big Tech is on a buying spree. Companies like Apple, Google, Facebook, and Amazon are gobbling up smaller companies at an unprecedented pace. Google has acquired 270 companies since 2001, including Android, YouTube, and Waze. Microsoft has made over 100 acquisitions in the last ten years, including acquisitions of Skype, Nokia Devices, LinkedIn and GitHub. Amazon has made a similar number of acquisitions. Facebook has acquired ninety companies. The law of competition is not ready for Big Tech’s endless appetite. This article, available here, shows how the extraordinary burden of proof required to prohibit a merger under the potential competition doctrine hobbles antitrust law and policy. It illustrates this problem with a close study of Facebook. The article assembles a database of Facebook’s completed acquisitions—ninety in all—and shows how the “potential competition” doctrine renders competition law entirely impotent to protect the consumer interest in this space. It further argues that, with à simple structural presumption, the Federal Trade Commission (FTC)…

John Kwoka and Tommaso Valletti ‘Scrambled Eggs and Paralyzed Policy: Breaking Up Consummated Mergers and Dominant Firms’

Competition policy has been no obstacle to the rise of dominant firms in e-commerce, social media, online search and other important aspects of the modern digital economy. The well-documented results of these trends are increasing market concentration, entrenched dominance, diminished competition and entry, and harm to consumers and businesses alike. Competition agencies, policymakers, academics, interest groups, and others have proposed various ways of addressing the weaknesses of past policy. Most of these proposed policies involve more vigorous application of conventional tools, which, however, are unable to address current levels of market concentration. However, the most obvious solution – breaking up such firms — is generally dismissed as impractical, the equivalent of trying to unscramble eggs. The authors disagree in this paper, available here. The rationale for breaking up companies is straightforward: where the essential competitive problem with a company is its structure, in the sense that its anticompetitive behaviour flows inexorably from that structure and is otherwise difficult to prevent,…

Mark A. Lemley and Andrew McCreary on ‘Exit Strategy’ 101 B.U. L. Rev. (forthcoming, 2021)

The venture capital funding model that dominates the tech industry is focused on the “exit strategy”— the ways funders and founders can cash out their investment. While in common lore the exit strategy is an initial public offering (IPO), in practice IPOs are increasingly rare – they now account for fewer than 1 in 10 exits for start-ups, and happen later in a company’s life than they used to. Instead, most companies that succeed exit the market by merging with an existing firm. Innovative start-ups are especially likely to be acquired by the dominant firm in the market, particularly when they are venture funded, for a variety of reasons – because the dominant firms value the target’s technology, because they have lots and lots of money, or to eliminate a potential competitor who might leapfrog them in Schumpeterian competition. This paper argues that this focus on exit, particularly exit by acquisition, is pathological and one of the main reasons for…

Andre Minuto Rizzo ‘Digital Mergers: Evidence from the Venture Capital Industry Suggests That Antitrust Intervention Might Be Needed’ (2020) Journal of European Competition Law & Practice

There is a growing debate around the possible existence of a kill zone around tech titans. This is an area where venture capitalists will not finance start-ups because of fear of both exclusionary conduct and aggressive acquisition strategies by technology incumbents. This paper, available here, draws upon existing literature and antitrust agencies’ work, as well as data from the venture capital industry, to argue for the need to investigate the existence and magnitude of the kill zone, as well as its possible causes. Section II looks at evidence from the venture capital industry. Venture capital consists of equity investments in companies with innovative ideas characterised by both high growth potential and high risk of failure. Venture capitalists invest across different stages of the life cycle of start-up companies. Recent years have seen larger and later-stage deals, with funds being funnelled to fewer companies, many of which are large enough to be valued at over USD 1 billion, together with a…

Axel Gautier and Joe Lamesch ‘Mergers in the Digital Economy’ (2020) Information Economics and Policy

Google, Amazon, Facebook, Apple and Microsoft (GAFAM) make huge investments in research and development, with a cumulated investment of over USD 71 billion in 2017. In addition to these important investments, GAFAM have engaged in extensive mergers and acquisitions (M&A) activity. Between 2015–2017, GAFAM acquired 175 companies, most of which seem to be young and innovative start-ups. Despite their intense merger activities and the vivid debates they generate, little is known about the the GAFAM’s merger strategies. With the exception of a report reviewing the CMA’s decision-making, there is no systematic analysis of the merger activity of the main digital platforms. This paper, available here, provides detailed information and statistics on the merger activity of GAFAM, and on the characteristics of the firms they acquire. Section 2 present the digital platforms’ business model. The authors identify the segments in which each GAFAM firm operates, i.e. the main categories of users they serve and the main revenue sources of each firm,…

Massimo Motta and Martin Peitz ‘Big Tech Mergers’

Big tech mergers occur frequently. The vast majority of such mergers were not reviewed by competition authorities, and those that were have been approved. Nonetheless, competition authorities and governments have become increasingly nervous at the perceived concentration in some digital markets, and at the persistent and increasing market power of some firms operating in digital industries. There is also concern that recent mergers were investigated using an inadequate methodology, possibly leading to wrong decisions. As a result, some of the (many) mergers in digital industries may well have favoured the entrenchment of large firms’ market positions. This paper, available here, explores this possibility, by developing a model and reviewing the main theories of harm that may apply to such mergers. Section 2 develops a simple model to address the possible anti- and pro-competitive effects of start up acquisitions by digital incumbents. This model provides some guidance as to what to expect from such acquisitions and as to the instances in…

Sai Krishna Kamepalli, Raghuram G. Rajan and Luigi Zingales ‘Kill Zones’ (2020) Working Papers 2020-19 Becker Friedman Institute for Research In Economics, University of Chicago

Digital platforms can acquire potential competitors, dissuading others from entering the market and protecting them against disruptive innovations. In a sense, digital incumbents create a “Kill Zone” around their areas of activity, which might discourage new investments. However, the idea that acquisitions discourage new investments is at odds with a standard economic arguments: if incumbents pay handsomely to acquire new entrants, why should entry be curtailed? Why would the prospect of an acquisition not be an extra incentive for entrepreneurs to enter the space, in the hope of being acquired at hefty multiples? This paper, available here, explores why high-priced acquisitions of entrants by an incumbent may not necessarily stimulate more innovation and entry in an industry (like that of digital platforms) where customers face switching costs and network externalities. The prospect of an acquisition by the incumbent platform undermines early adoption by customers, reducing prospective payoffs to new entrants. This creates a “kill zone” in the start-up space, as…

Frederic Jenny ‘Economic Resilience, Globalization and Market Governance: Facing the Covid-19 Test’

Globalisation contributed to the rapid spread of COVID to all corners of the globe. The economic cost of fighting the virus froze a number of economies and disrupted global value chains, and is likely to be followed by several years of an economic depression that will dwarf the cost of the 2008 financial and economic crisis. The dramatic events of the first quarter of 2020 challenge some of the implicit assumptions underlying the design of our economic systems, and should make us think about some of the dilemmas and trade-offs that this crisis has foisted upon us. This piece, available as a working paper here,  is not mainly about competition – instead, it is a piece that thinks widely about the implications of this pandemic for the economic architecture underpinning globalisation, which also touches on competition. This is because, in the grand scheme of things, competition law and policy plays a relatively limited role when markets are not in equilibrium,…

Viktoria Robertson on ‘Excessive Data Collection: Privacy Considerations and Abuse of Dominance in the Era of Big Data’ (2020) Common Market Law Review 57 161

It is debatable whether EU competition law already contains – or could and should potentially develop – antitrust theories of harm that apply to third-party tracking of personal user data on the web. Focusing on data gathering, this paper – available here – assesses two scenarios under which EU competition law may deem the vast amounts of data gathered by certain digital platforms excessive: excessive data “prices” and unfair data policies. In both cases, the competition law assessment is autonomous from other areas of the law: while a breach of data protection rules is not automatically a breach of competition law, a company adhering to data protection rules may still violate competition laws. The paper finds that EU competition law already possesses the necessary tools to address excessive data collection, while data protection rules provide much-needed context for this type of exploitative abuse. Section II discusses data gathering through third-party tracking. Tracking occurs both on the web and in applications (apps) for electronic…

Marco Botta and Klaus Wiedemann  ‘To Discriminate or not to Discriminate? Personalised Pricing in Online Markets as Exploitative Abuse of Dominance’ (2019) European Journal of Law and Economics 1

The advent of big data analytics has favoured the emergence of forms of price discrimination based on consumers’ profiles and their online behaviour (i.e. personalised pricing). This paper, available here, analyses this practice as a possible exploitative abuse by dominant online platforms. It concludes that such practices can have ambiguous welfare effects, and be subject to a case-by-case analysis. It also argues that competition law is more suitable than omnibus regulation – particularly data protection and consumer law – to tackle the negative effects of personalised pricing, particularly because competition authorities could negotiate with online platforms different kinds of behavioural commitments that could significantly tame the risks of personalised pricing. Section II looks at price discrimination in online markets. Economists typically distinguish between three different types of price discrimination. First-degree price discrimination takes place when a firm is able to discriminate perfectly among its customers. Second-degree price discrimination means that the firm discriminates between its customers by granting discounts once…