Big Tech Acquisitions: Competition and Innovation Effects & EU Merger Control
Over recent years, we have observed a wave of mergers and acquisitions in the digital economy. Some flagship mergers have made headlines: Facebook acquired WhatsApp for $19bn in 2014, Google took control of Motorola Mobility in the same year for $12.5bn, and Microsoft bought LinkedIn for $26bn in 2016.
In parallel to these large operations ‘big tech’ companies also buy many successful or promising start-ups on a very large scale. For example, for the year 2017 alone, Alphabet, Amazon, Apple, Facebook and Microsoft spent a total of $31.6bn on acquisitions of start-ups.
Most of those mergers were not reviewed by the European Commission or national competition authorities as they were below the notification thresholds. With the benefit of hindsight and a better understanding of the competitive forces in the digital economy, a 2-fold debate is emerging among antitrust agencies and academics:
- Should more big tech acquisitions be reviewed by the agencies?
- Should additional or different theories of harm and proof be developed?
Given the importance of innovation in the digital economy, these questions are part of a broader debate on competition policy and innovation. When studying the acquisitions of big tech firms, it is important to take into account the specific characteristics of competition and the different types of innovation in the digital economy.
This paper looks at the characteristics of the digital economy and outlines the main issues raised by the effects of big tech acquisitions on innovation and competition. It reviews the main economic theories which analyse the effects of big tech acquisition, and discusses the implications of those theories on EU merger control, in particular regarding the notification threshold, the theories of harm and the standard and burden of proof.