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) could have elected to challenge these mergers and shifted the burden to Facebook to demonstrate why no harm to future competition could occur, and why, given Facebook’s resources, it could not internally innovate to achieve its business goals. These conclusions apply to tech mergers more generally.

The paper begins by reviewing Facebook’s acquisition practices.

Beginning in 2007, the company pursued a series of acquisitions of both its potential rivals in the social media market and firms in adjacent markets that could divert user engagement away from the social network. From 2007 to 2018, Facebook acquired or attempted to acquire more than 100 companies. The ninety acquisitions completed since the company’s founding range from small acquisitions like the $2.5 million purchase of location services network Nextstop to the $19 billion acquisition of popular instant messaging rival WhatsApp in 2014. Many of the acquisitions converted stand-alone apps, websites, and platforms that worked interoperably across competing networks into Facebook-exclusive features. Other products were simply shuttered in the days or months following their acquisition.

Remarkably, Facebook’s ascendancy in concert with its numerous acquisitions stimulated little interest by the antitrust agencies. Few acquisitions faced review from antitrust authorities in the United States, and none was challenged. The question arises why the federal antitrust enforcement agencies demonstrated reluctance seriously to confront the competitive impact of these and similar mergers by high tech companies. To understand this, one must first look at how the law of potential competition mergers developed and why it has been so underutilised

Section II then looks at the potential competition doctrine.

In developing the legal standard for potential competition, the Supreme Court divided it into two separate legal doctrines. The first is the actual potential competition doctrine, which applies when the potential competitor does not have a present procompetitive effect on the market, but considerable evidence exists that that potential competitor is going to enter that market. The second is the perceived potential competition doctrine, concerning transaction that may remove ongoing procompetitive influences that the acquired firm has on the target market stemming from the target market’s perceptions of the acquired firm’s ability to enter the target market.

Each standard must meet distinct, but extraordinarily high evidentiary requirements. For an actual potential competition theory to succeed, the applicant must fulfil two conditions. First, it must show that the potential competitor could enter the market at issue absent the merger, and that there is “unequivocal proof” of future de novo entry. Second, it must be shown that such market entry would produce a likelihood of deconcentration or other significant procompetitive effects. For the perceived potential competition theory, the required showing is that the acquired firm is a perceived entrant and that this perception “tempers” non-competitive behaviour in the market.

The difficulty of meeting these requirements is apparent in lower court cases, which often dismissed challenges to mergers unless there was clear evidence, or even evidence of subjective intention to enter the market. This has the clear effect of detracting antitrust enforcers from bringing such cases.

Section III applies the potential competition doctrine to the WhatsApp and Instagram acquisitions.

The authors’ intent here is not to demonstrate that these acquisitions were anticompetitive, but merely to show that the potential competition doctrine as presently formulated does not allow for a serious inquiry into tech mergers.

As regards Instagram, once it introduced advertising it would likely compete with Facebook in the digital display advertising market as well as in social networking. Thus, Facebook’s acquisition of Instagram presented a classic case of a potential competition merger. Despite the merger triggering a merger review, ultimately the antitrust agencies took no action. Today, Facebook claims a dominant position in the social networking and online social photo services markets, and enjoys market power through the Facebook-Google duopoly over digital advertising. If the antitrust agencies faltered, it may have been because the potential competition doctrine created difficult obstacles for a merger challenge. The potential competition challenge by the Department of Justice would have certainly failed under its own guidelines.

Regarding WhatsApp, it was a competitor with Facebook’s Messenger service. The acquisition of WhatsApp may also have posed important potential competition issues. The strength of its reliable private messaging capabilities, its social matrix connecting users through their address books, its access to unique user data, and its ability to scale untethered to a monetisation strategy based on consumer surveillance could have raised a threat to Facebook’s social network strategy. WhatsApp also may have been able to collaborate with complementary service providers to generate revenue and develop innovative and competitive social communications products. True to form, however, the FTC cleared the merger without challenge in April of 2014, with a letter warning both companies about their responsibility to maintain the privacy agreements in place when WhatsApp users accepted the company’s terms of service. This exemplifies how the high initial burden on the plaintiff to present a case concerning future conduct and competitive effects serves as a serious deterrent to potential competition mergers, even by dominant firms.

Section IV proposes a reform of the potential competition doctrine.

The potential competition doctrine sets up agencies to fail by placing an unrealistic burden on the government when challenging in any of the hundreds of mergers by dominant technology firms. To reverse this requires reform. The authors advocate the informed development of a structural presumption for potential competition mergers in technology markets.

The authors start from the 1968 Merger Guidelines, according to which a merger would likely be challenged when a firm with a large market share (above 25%) purchases a firm that is “one of the most likely entrants into the market”.

To address the intractability of proof in potential competition mergers, a structural presumption would be further required to deploy a reasonable proxy for ‘likely entry’ into tech markets. The authors adopt the concept of “proximate markets” to this end. Two markets are proximate to the extent that a knowledgeable firm in one market possesses the necessary production and marketing information and other capabilities to operate in the other.

Under this approach, both the Instagram and the WhatsApp mergers might have been challenged. Instagram and WhatsApp operated in a proximate market. The social features common to Facebook and Instagram demonstrate considerable proximity between the two companies. The private messaging offered by WhatsApp was rapidly becoming a prevailing aspect of online communication for individuals and groups. In both cases, users’ increasing reliance on mobile technology for digital interactions forced a collision between Facebook and the proximate markets that provided the aspects of online interaction its users increasingly demanded. Under the structural approach, tech mergers like Facebook’s acquisitions of Instagram and WhatsApp could be challenged and receive the scrutiny they deserve.


To say this paper is timely in light of last week’s announcements that US antitrust authorities were bringing a claim against Facebook for its merger practices may be the understatement of a rather eventful year. In addition, this paper provides a good – if critical – overview of the potential competition doctrine in the US, and an interesting proposal of how to incorporate potential competition within the scope of a workable analytical framework applicable to horizontal mergers.

At the same time, I had a number of questions while reading the paper. First, I acknowledge that the traditional approach to potential competition may have detracted from merger control of technological acquisitions. I felt that the authors’ analysis of potential competition, and how it could have applied to the WhatsApp and Instagram acquisitions, was compelling.  At the same time, I was not convinced that legal strictures regarding potential competition were the main impediment to prohibiting these transactions. After all, these transactions were reviewed by other jurisdictions that can more easily engage with potential competition than the US, and still nowhere were these acquisitions prohibited. Further, the authors begin by reviewing 90 acquisitions by Facebook, but then cherry-pick the two most successful ones as failures to identify potential competition – and seem to argue that, since those businesses are now successful, the agencies could have foreseen such an outcome and were only prevented from doing so by the stringency of legal requirements. I do not think this can be right – instead, this mode of analysis would require a systematic disquisition of Facebook’s acquisitions, or at the very least the identification of a criterion allowing the authors to single out the Instagram and WhatsApp mergers.

In any event, and as I have repeatedly noted, I think the problem is that it will always be difficult to identify instances of potential competition that meet legal and evidentiary standards in fast-moving, dynamic markets. This leaves us with two options, none of which is merger specific: prohibit certain entities from acquiring other firms (or, in the alternative, place a burden on the merging parties to show sufficient efficiencies); or use competition law to sanction exclusionary tactics, which will usually be a combination of ‘buy-or-bury’ conduct.

The authors’ proposal leans towards the first option, adopting a structural presumption that reverses the burden of proof subject to specific conditions regarding market concentration. However, it is not clear how this proposal is related to tech mergers at all – it is a proposal to change the general law governing mergers, which would seem to call for a thorough argument substantiating the risks of overlooking potential competition in merger control. From this standpoint, it is surprising that the authors do not even make this case for the tech sector, but focus instead on the specifics of a single company. Further, the argument that under their proposal two acquisitions by Facebook would be prohibited fail to explain why this would have been beneficial – the authors even note that it is not their intent to argue that the mergers are anticompetitive. In short, this mode an analysis provides an odd foundation from which to try to overhaul a whole system.

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