Working Paper: CEPR ID: DP14166
Authors: Elena Argentesi; Paolo Buccirossi; Emilio Calvano; Tomaso Duso; Alessia Marrazzo; Salvatore Nava
Abstract: This paper presents a broad retrospective evaluation of mergers and merger decisions in the digitalsector. We first discuss the most crucial features of digital markets such as network effects, multi-sidedness, big data, and rapid innovation that create important challenges for competition policy.We show that these features have been key determinants of the theories of harm in major mergercases in the past few years. We then analyse the characteristics of almost 300 acquisitions carriedout by three major digital companies –Amazon, Facebook, and Google – between 2008 and 2018.We cluster target companies on their area of economic activity and show that they span a widerange of economic sectors. In most cases, their products and services appear to be complementaryto those supplied by the acquirers. Moreover, target companies seem to be particularly young, beingfour-years-old or younger in nearly 60% of cases at the time of the acquisition. Finally, we examinetwo important merger cases, Facebook/Instagram and Google/Waze, providing a systematicassessment of the theories of harm considered by the UK competition authorities as well asevidence on the evolution of the market after the transactions were approved. We discuss whetherthe CAs performed complete and careful analyses to foresee the competitive consequences of theinvestigated mergers and whether a more effective merger control regime can be achieved withinthe current legal framework.
Keywords: digital markets; mergers; network effects; big data; platforms; ex post; antitrust
JEL Codes: K21; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger of an incumbent with a potential competitor (G34) | stifle competition (L12) |
| digital market characteristics (network effects and big data) (D26) | increased market concentration (L11) |
| acquisitions of complementary products (L14) | depriving rivals of opportunities to innovate and compete effectively (L12) |
| Facebook-Instagram merger (D26) | reinforce Facebook's market power (D43) |
| Instagram evolving into a more competitive social network (Z13) | reinforce Facebook's market power (D43) |