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The threat of Google, Microsoft, and powerful antitrust agencies

Tonhere yes Worry about mergers, welcome mergers. The first category is cooperation between large companies in the same industry. In these “horizontal” mergers, competitors are excluded from the market, thereby removing constraints on price. In such cases, the competition authority will investigate the merger and possibly block it. Other mergers have historically been considered less troublesome. The effect on competition is considered benign if a company acquires another company in an adjacent line of business (consolidated merger) or if a supplier acquires a customer (vertical merger).

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But that has changed in recent years. A growing number of non-horizontal mergers are being challenged by antitrust agencies. In September the U.S. Federal Trade Commission (Federal Trade Commission) lost in court over a partnership between Illumina to deliver “next generation” DNA– Sequencing tools, and Grail, a developer of early cancer detection tests that rely on Illumina technology.this Federal Trade Commission The verdict is being appealed. In October, the UK Competition and Markets Authority (CMA) to force Facebook to withdraw its acquisition of Giphy, which GIFto social media platforms. February 8, CMA Published preliminary findings that Xbox game console maker Microsoft’s acquisition of gaming studio Activision Blizzard will reduce competition in the industry.

Strong antitrust policies are often motivated by anxieties about big tech companies. Thanks to the power of the web, Facebook, Google, and Microsoft quickly gained dominance in their respective markets: the more people using their products, the better they were and the more attractive they were to other customers. While it’s hard to fault this organic growth on a competitive basis, antitrust circles are adamant that Big Tech shouldn’t be allowed to acquire other businesses in the process. Regret about the past thus drives recent regulatory activism. However, it also has its own risks. In fact, in many cases, consolidation is a good thing for consumers. The danger now is that the pendulum will swing to overenforcement.

To understand how regulators got to this point, it is necessary to go back to the 1970s. A group of antitrust thinkers at the University of Chicago challenged the idea that vertical mergers could be harmful, adopting the theory of “monopoly profits.” The theory holds that a monopolist cannot extend its market power up or down the vertical production chain. To understand it, imagine an airport operator that leases space to two coffee shops. Carriers have a monopoly resource: property around an exclusive market for passengers who need their morning coffee. To maximize profits, it sets rents high enough that stores only earn competitive returns. However, if the operator buys one of the coffee retailers, the profit-maximizing rent does not change (hence monopoly profit).

In this way, vertical mergers cannot hurt consumers. They might even help them out. A related theory holds that in an industry with some market power at each stage of production, a vertical merger will cause prices to fall because one of the non-competitive markups will be eliminated. In this case monopoly profit once means you won’t be scammed twice.

These days, antitrust agencies pay less attention to pricing. They are more worried that a vertically integrated company will use its strength in one part of the chain to crowd out competitors in another part.In Illumina’s case, the worry is that Grail’s competitors won’t get DNA– They need to develop sequencing tools for competitive cancer tests. In Microsoft’s case, the concern is that Xbox rival PlayStation maker Sony will lose access to games made by Activision, hurting competition. To stick with the fees, antitrust agencies would have to show that such restrictions would be profitable, but that’s unlikely to happen in the short term because it would mean fewer products being sold, at least initially. Therefore, regulators must make predictions about how the market may evolve. This is the economic equivalent of long-term weather forecasting.

Which brings the story back to the big tech companies. Winner-take-all online tends to eliminate competitors from the big tech giants. Competition policy cannot do anything about this dominance. In theory, the myriad of startups racing to knock Big Tech from their positions should be a check on their business practices. But so-called “shootouts” of acquisitions — acquisitions of startups that could become rivals to big tech companies — tend to eliminate any threat from this corner. For many trust-breakers, Facebook’s acquisition of fledgling Instagram in 2012 fell into that category. Also regrettable is that Google’s 2008 acquisition of ad server DoubleClick helped strengthen its grip on digital advertising, a market that is now the subject of a massive antitrust investigation.

praise big business

Undoubtedly, vigilance is sometimes called for. But it’s easy to forget that the Chicago Revolution was a response to powerful trust busters who believed that big business was always bad and that small business, no matter how bad, should be protected from competition. In the United States, courts are a check on over-enforcement. The Chicago School has developed decades of jurisprudence that non-horizontal mergers are benign. Still, the prospect of a court battle is enough to put some companies off.Last year, chipmaker Nvidia dropped a deal with arma chip designer, faces antitrust scrutiny.

it tells us CMA First to block mergers involving tech giants such as Facebook and Microsoft. Britain’s antitrust agency may be the most feared right now.from European Unioncompetition policy, CMA Revised its guidance in 2020 to place greater emphasis on how the combined market will develop. In the UK and Europe, competition cases are dealt with in the administrative system rather than in court as in the US.All of these are given CMA Considerable power. A rare example of a Brexit dividend? Antitrust agencies might say so. Not everyone will agree.

Read more from our economics column Free Exchange:
AI boom: Lessons from history (February 2)
Are Economists Misunderstanding Inflation? (January 26)
Will Europe end up with a bigger inflation problem than the US? (January 19)

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