The economic literature suggests that killer acquisitions may cluster in specific industries like pharmaceuticals, or that their adverse effects on competition require specific conditions to hold true. Nevertheless, the idea that large technology firms acquire startups to suppress competitive threats is driving rapid changes in merger policy. Competition agencies like the Federal Trade Commission (FTC), the Competition and Markets Authority (CMA), and the European Commission (EC) are poised to challenge an increasing number of mergers in all technology industries by relaxing the existing conditions discussed in the economic literature. Recently, the CMA successfully prohibited the merger between Meta and the GIF supplier GIPHY. In the United States, the FTC challenged, albeit unsuccessfully, Facebook’s acquisition of Within, and both the FTC and the EC opened in-depth investigations into Microsoft’s plan to buy Activision.
This article aims to contribute to the debate on the competitive assessment of killer acquisitions by studying concrete cases. We are interested in the kill. Let us present the issue in a logical way. If the kill targets a future competitor, then the competitive analysis must focus on the target’s product and services (for convenience, we talk about products). The question is: Are the (presently competitive) products of targets bought by large tech firms abandoned in the post-acquisition world? Or are the (prospectively competitive) products of targets scaled (the so-called scaling acquisitions)? If the products and services are scaled, did the acquisition increase the scaling potential of the product compared to the non-acquisition world, hence increasing the survival potential of the incumbents’ products? Or did it decrease survival potential? The answer to these questions is determinant of whether a merger substantially lessens competition and thus innovation, and consequently whether it warrants prohibition. A policy preventing killer acquisitions is prospective. “[R]isks of error are inevitable.” Evaluating whether a transaction led to decreased competition in an ex post fashion is important to minimize the risks of enforcement errors.
Unfortunately, it is hard to study the kill due to a problem of observability. Once a firm is acquired, its products are integrated in the merged firm. How can we observe, from outside the firm, whether the target’s product is scaled or shelved by the buyer? The problem is compounded when the buyer integrates the target’s product with its own.
Besides, the killer-acquisitions theory rests on a strong assumption about competition. Even if we find in all cases that the target’s products are discontinued in the buyer’s firm, it does not necessarily follow that the outcome is a substantial lessening of competition. Demand for the discontinued product may switch to alternative and close product substitutes, leading to the growth of third-party competitors. Equating a discontinuation of the target’s product with illegality is therefore excessive. The former does not necessarily establish the latter.
A solution to both the observability and inference problems is to focus on perceptions of the competitors of the acquired entity. We use competitors’ official statements (yearly 10-K reports to the Securities and Exchange Commission (SEC)) to address several issues at once. First, we study if, in the competitors’ perception, the target is still alive post-acquisition. Second, we use competitors’ official statements to assess the output of competitors before and after the merger and attempt to shed light on whether the merger weakened competition. Third, competitors’ official statements possibly embody anecdotal evidence about the existence or absence of competitive industry events, such as the entry of a new competitor or product innovation. We study these statements to draw insights on the state of market dynamism post-acquisition.
With this background, we explain below that the plausibility of the killer-acquisition theory requires that mergers would, at the very least, yield three post-transaction changes: (1) a disappearance of the target’s products, (2) a weakening of competing firms, and (3) a post-merger lowering or absence of entry and innovation. In this article, we undertake several case studies based on EC merger cases in the information and communication technology (ICT) industries to assess whether such changes can be observed.
Our work aims to contribute to the emerging literature on killer acquisitions by providing a retrospective case-studies analysis of technology mergers in the European Union. We examine whether the claim that technology companies acquire rivals with the goal of terminating their operations held in the EC cases publicly available to date. We aim to enrich the available evidence and contribute to the debate with reasoned analysis. Although our sample of cases is small, the evidence that we garner is of sufficient quality to contribute to the debate around reforming merger policy.
The article is organized as follows. Part I reviews the literature, Part II introduces our methodology, and Part III describes the results of our case studies. The Conclusion formulates directions for future research.
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