Karen Geurts and Johannes Van Biesebroeck ‘Employment Growth following Takeovers’ (2019) The Rand Journal of Economics 50(4) 916

This paper, available here, takes a sample of takeovers in Belgium over five years, and estimates their impact on employment growth. It finds that the average merger temporarily reduces employment of the combined entity by −1.4%. However, long-term effects are markedly different. Mergers likely to be motivated by acquiring or defending market power show a stronger and permanent employment reduction of −14%, whereas those motivated by efficiency gains lead to employment expansions of +10%. Section I sets the scene. Existing research provides a range of estimates for the employment effects of mergers, with no consensus having emerged about the predominant effect of mergers on employment. Studies that find a negative effect outnumber those that find a positive effect, but all come with caveats. At the same time, the literature has long noted the potential for efficiency gains from mergers. Acquirers often argue that reduced variable costs can offset market power and lead to lower prices, which in turn can raise…

Massimo Motta and Martin Peitz ‘Removal of Potential Competitors – A Blind Spot of Merger Policy?’ (2020) Competition Law and Policy Debate (6)2 19

Mergers that may look conglomerate or vertical at first glance may in essence be horizontal, inasmuch as they involve the removal of a potential competitor. Indeed, many conglomerate and vertical mergers can be addressed from the perspective of potential competition. Economists have started to look into vertical and conglomerate mergers which can be analysed from this perspective in the pharma and digital sectors; however, the issue is not restricted to these sectors. Merger policy must deal with two issues as regards such mergers: (1) how to make sure that potentially problematic mergers are notified and investigated; and (2) how to assess the social costs and benefits of such mergers. This paper, available here, looks at both these issues. Second II looks at the theory and evidence of mergers to remove potential competitors. Large firms have been taking over dozens of small technology firms which have not yet marketed their products, or that were at an initial phase of rollout. Such…

Nicholas Levy ‘Judicial review of merger decisions: An overview of EU and national case law’ (2019) Concurrences Special Issue Mergers Judicial Review

When the European Merger Control Regulation (EMCR) was adopted, there was uncertainty about whether the EU Courts would act as an effective check on the Commission’s enforcement, and exert discipline on its decisions in the same way as U.S. courts discipline the U.S. federal agencies’ determinations of whether mergers should be allowed to proceed. There was also uncertainty as to the scope for timely judicial review. History has proven the sceptics wrong. The EU Courts have played a highly significant role in shaping the law and holding the Commission to account. Although the EU Courts have recognised that judicial deference is embedded in the EU system of merger control, they have nevertheless been ready to subject Commission decisions to careful and comprehensive review. The courts have also protected merging companies’ rights of defence, striking down decisions that have been insufficiently substantiated or based on findings inadequately presented to the merging parties during the administrative process. The EU Courts have also…

Bill Kovacic ‘Competition Policy Retrospective: The Formation of the United Launch Alliance and the Ascent of SpaceX’ (2020) George Mason Law Review

In May 2005, Boeing and Lockheed Martin announced plans to form the United Launch Alliance (ULA), a joint venture which combined the only two suppliers of medium-to-heavy national security related launch services to the U.S. government. With input from the US Department of Defence (DOD), the FTC cleared the transaction. The FTC’s approval rested on two assumptions: that the efficiencies claimed by the merging parties were significant, and that the DOD and the NASA would use best efforts to facilitate entry into the launch services sector. This article, available here, examines the merger clearance decision and assesses the assumptions supporting this 2006 decision in light of subsequent experience. In short, those assumptions proved justified. ULA thus far has met the reliability expectations that guided the analysis of the DOD and the FTC. From its first days of operation through July 30 2020, ULA has made 140 launches without a failure. The venture has achieved and surpassed the reliability goals that…

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)…

Russel Pittman ‘An Economist’s Thoughts on Behavioural Remedies in Merger Enforcement’ (2020) CPI Chronicle April

This paper, available here, argues that, not only does the current consensus favour structural over behavioural remedies, but that the reasons supporting such a trend are stronger than we may have anticipated. Behavioural remedies may be even more complex and raise more complicated economic issues than has been previously appreciated. As such, competition agencies would do well to approach behavioural remedies with great care. The paper begins by outlining the consensus on merger remedies. There is by now a substantial literature examining US and EU experience in imposing merger remedies. A number of “lessons” seem to have become broadly accepted in recent years: (i) structural remedies are generally to be preferred over behavioural remedies; (ii) structural remedies should where possible include the divestiture of complete existing “business units”; (iii) structural remedies may sometimes need to be supported by behavioural measures, if only as a transition mechanism; (iv) the merging firms have clear incentives to seek buyers and/or to package assets…

John Kwoka ‘Conduct Remedies, with 2020 Hindsight: Have We Learned Anything in the Last Decade?’ (2020) CPI Chronicle April

A decade ago, U.S. antitrust policy embarked on an experiment in expansive use of conduct remedies for mergers. Several major cases were settled with commitments that the merged firm – as a condition for approval of their mergers – would not engage in specific anticompetitive actions. However, a growing body of experience and research has found that conduct remedies are hard to write, even more difficult to enforce, and often simply ineffective. Despite this, over the past decade the agencies have not only failed to limit reliance on conduct remedies: they have continued to use them and even extended their use in more problematic directions. This essay, available here, discusses the flaws inherent in conduct remedies, before describing three recent cases that raise the question of whether anything has been learned from recent experience with such remedies Section II looks at the limitations of conduct remedies. Conduct remedies represent an effort to allow a merger to proceed while preventing anticompetitive…

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…