Elena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo and Salvatore Nava ‘Merger Policy in Digital Markets: An Ex Post Assessment’ (2021) Journal of Competition Law & Economics 17(1) 95

This paper, available here, presents a broad retrospective evaluation of mergers and merger decisions in markets dominated by multisided digital platforms. It identifies almost 300 acquisitions carried out by three major tech companies— Amazon, Facebook, and Google—between 2008 and 2018, looks at the business logic behind these transactions, and explores the theories of harm that have been used or, alternatively, could have been formulated by authorities. The paper then retrospectively examines two important merger cases, Facebook/Instagram and Google/Waze, providing a systematic assessment of the theories of harm considered by the UK competition authority, as well as evidence on the evolution of the market after the transactions were approved. Section II looks at the wealth of mergers and acquisitions (M&A) carried out by key digital platforms between 2008 and 2018. Companies active in digital markets are remarkably active in M&A, constantly seeking out interesting start-ups and purchasing them. Between 2008 and 2018, Google acquired 168 companies, Facebook acquired 71 companies, and…

Herbert Hovenkamp ‘Antitrust and Platform Monopoly’ (2021) 130 Yale L.J

Should antitrust policy do more to promote competition in digital platform markets? Is antitrust law sufficient to address competition problems in digital platforms, or are those problems so common and widespread that they require more pervasive public control? This article, available here, argues that sustainable competition in platform markets is possible, and that the individualised approach of the antitrust laws is better for consumers and most other affected interest groups than more intrusive regulation. Antitrust intervention will be less likely to reduce product or service quality, limit innovation, or reduce output than other regulatory alternatives. To achieve these outcomes, antitrust law needs to treat digital platform markets for what they are: markets that have some unique characteristics, but markets nonetheless. As a result, for the most part competition problems in them can be controlled with the antitrust tools we have. Section I considers digital platform monopoly. Antitrust policy is concerned with exercises of market power. The power question for digital…

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)…

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…

C. Scott Hemphill and Tim Wu on ‘Nascent Competitors’ (2020) University of Pennsylvania Law Review (forthcoming)

A nascent competitor is a firm whose prospective innovation represents a serious future threat to an incumbent. Nascent rivals play an important role in both the competitive process and in developing innovation. New firms with new technologies can challenge and even displace existing firms; sometimes, innovation by an unproven outsider may be the only way to provide new competition to an entrenched incumbent. For competition enforcers, nascent competitors pose a dilemma. While nascent competitors often pose a uniquely potent threat to an entrenched incumbent, the firm’s eventual significance is uncertain, given the environment of rapid technological change in which such threats tend to arise. That uncertainty, along with a lack of present, direct competition, may make enforcers and courts hesitant or unwilling to prevent an incumbent from acquiring or excluding a nascent threat. This essay, available here, identifies nascent competition as a distinct category and outlines a program of antitrust enforcement to protect it. It favours an enforcement policy that…