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…

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…

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…

Jorge Padilla on ‘Revisiting the Horizontal Mergers and Innovation Policy Debate’ (2019) Journal of European Competition Law & Practice 10(6) 370

The Dow/DuPont merger launched an economic debate about the effects of horizontal mergers on innovation. Underpinning these debates are a number of points of agreement, beginning with consensus over the debate on the relationship between competition and innovation not being directly transferable to the effect of horizontal mergers. There are also a number of shared conclusions regarding merging firms’ ability and incentive to innovate when those firms compete in developing new products (product innovation) or in reducing their costs (process innovation). Such mergers may give rise to various efficiencies and increase the merging parties’ ability to innovate, but they can also influence the parties’ incentives to engage in R&D and implement their innovations. Ultimately, whether a merger leads to more innovation will depend on the nature and relative magnitude of the positive and negative externalities that the investments made by one party generate on the other. Where there seems to be no agreement, however, is on the implications of the…

Eliana Garcés and Daniel Gaynor, deals with ‘Conglomerate Mergers: Developments and a Call for Caution’ (2019) Journal of European Competition Law & Practice 10(7) 457

Traditionally, conglomerate mergers have raised little antitrust concern since the merging companies’ products were not perceived to compete with each other or to be critical in the merger parties’ value chain. The assessment of these mergers has generally consisted of a check for potential foreclosure strategies by way of tying or the reduction of technological interoperability. More recently, new theories of harm emerged from bargaining theories and dynamic considerations. These theories acknowledge a greater concern about dynamic effects of mergers on innovation, that an increasing number of markets exhibit bargaining power on both sides of a transaction, and that mergers of complements may not be innocuous in markets for increasingly complex products. This paper, available here, argues that these new theories are not suitable to generate ex ante decision-making rules; instead, their applicability will need to be empirically validated on a case-by-case basis. Section 2 deals with the traditional treatment of conglomerate mergers. The most common theories of harm traditionally…

Pauline Affeldty, Tomaso Dusoz and Florian Szücs on ‘25 Years of European Merger Control’ (2019) DIW Berlin Discussion Paper 179

The first European merger control regime came into force in 1990. Since then, merger control has evolved significantly. This paper, available here, employs a new dataset, comprising all merger cases until 2014 that led to a decision by DG Comp (more than 5,000 individual decisions). The goal of the paper is to evaluate the time dynamics of the European Commission’s decision procedures. Specifically, the paper assesses how consistently different arguments related to so-called structural market parameters – market shares, concentration, likelihood of entry and foreclosure – were deployed by the Commission over time. The paper first estimates the probability of intervention as a function of merger characteristics. It finds that the existence of barriers to entry, increases in concentration and, in particular, the share of product markets with competitive concerns are positively associated with intervention by the Commission. After the reform of 2004, an effects-based approach centred on a clearly stated theory of harm became a cornerstone of EU merger…

Volker Nocke and Michael D. Whinston on ‘Concentration Screens for Horizontal Mergers’ (2020) NBER Working Papers no 27533

Concentration measures play a central role in merger analysis. Existing guidelines identify various presumptions – both safe harbours and presumptions of anticompetitive effects – based on the level of the post-merger Herfindahl index and of the change that the merger induces in that index. These presumptions have a significant impact on agency decisions, especially in screening mergers for further review. However, the basis for these screens, in both form and level, remains unclear. The authors of this paper, available here, show that there is both a theoretical and an empirical basis for focusing solely on changes in the Herfindahl index, and ignoring its level, in screening mergers for whether their unilateral effects will harm consumers. The authors also argue that the levels at which the presumptions currently are set may allow mergers to proceed that cause consumer harm. Section 2 reviews concentration screens in various versions of the US Horizontal Merger Guidelines. The first version of the Merger Guidelines –…

William E. Kovacic, Robert C. Marshall and Michael J. Meurer on ‘Serial collusion by multi-product firms’ (2018) Journal of Antitrust Enforcement 6 96

This paper, available here, is long and so, I am afraid, is the review. In short, the authors of this paper take issue with the assumption that each cartel in which a given firm participates is a single instance of conduct that is independent of other cartel conduct by the firm. Evidence of serial collusion by major multi-product firms is readily observable from the public record in a number of sectors, such as chemicals, electronics, car-parts, financial products or graphite. Further, collusion persists in at least three of these industries, with new investigations having recently been opened into collusion in the chemical, auto parts, and financial products markets. The paper provides empirical evidence that many multi-product firms have each participated in several cartels over the past 50 years. It argues that traditional assumptions regarding how cartelists operate, and consequent enforcement strategies, are deficient in many aspects. Reflecting this, the authors make policy recommendations to reign in serial collusion. The article is structured as…