Congress faces criticism over bigtech M&A analysis

By Emma Olsson | 13 October 2020

According to Scott Marcus, senior fellow at think tank Bruegal, the House of Representatives antitrust subcommittee’s report on bigtech mergers highlights crucial structural issues, but falls short in justifying its claims.

The report - an investigation of competition in digital markets - assesses the impact of bigtech acquisitions on nascent startups.

“The point that’s made in the report is that the impact on innovation can be important, that basically killing off innovation by buying startups in order to keep them from becoming competitors harms everybody except the company that buys them,” says Marcus.

“I think it’s a real issue – how you solve it is not clear.”

One of the measures proposed by the report was to prohibit mergers specifically from Google, Amazon, Facebook and Apple (GAFA).

“This begs the question – how do they know which companies’ mergers should be prohibited for? One could say, is it all mergers or just some? But I would think that there’s a pretty strong argument from a public policy point of view to do something in this area, I just have trouble seeing exactly how they’ll get it to work,” says Marcus.

Released on October 6, the 449-page report accused GAFA of market power abuse, suggesting a rewrite of US antitrust law. It also called for regulators to presume proposed acquisitions by a dominant company to be in breach of antitrust law unless proven otherwise.

The firms in question responded harshly to the report, with Amazon criticising the document’s “misguided interventions in the free market” in a blog post.

The report does not establish boundaries for which companies would fall under the scope of proposed new antitrust laws, says Marcus, pointing out that Microsoft was not included in the report. The US does not have a history of legislating individual companies, focusing rather on a class of companies. This would make laws aimed specifically at GAFA unprecedented.

“We’re operating in much more complicated markets than we had years ago … in competition theory in the past, often the big worry would be if the companies merge, will prices go up and consumers be hurt?

“Here for Google, the prices to the consumers don’t go up, but the prices to the advertisers might go up. Trying to identify what’s the harm, who gets harmed, what matters and what doesn’t needs some serious rethinking,” he says.

A focus on individual bigtech firms also presents challenges surrounding potential government compensation for diminishing their reach.

“We talk regularly about the GAFA, I’m not saying it’s the wrong four. But if we were to look at any obligation, the question is who is it fair to impose on and why? If you’re going to do some serious damage to a company’s market cap, do you need to compensate them? If you were taking that for the government, normally there’d be a requirement under the fifth amendment to provide compensation.”

While mergers and acquisitions present a clear public policy concern, an anti-competitive presumption is misguided, says Marcus.  

“When we talk about preventing mergers, clearly some mergers are welfare enhancing. There are some things that gain from economies of scale or scope. Historically the effort has been to try to identify the ones that had potential to harm consumers by reducing competition, raising prices, reducing innovation. So, when we talk about a presumption against mergers, the question is for whom and which ones and why?”
 

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