A Decade of Enforcement: Traditional Theories of Harm and the Challenges Posed by Digital Mergers

Abstract

A Decade of Enforcement: Traditional Theories of Harm and the Challenges Posed by Digital Mergers

Many commentators have expressed concerns about the current state of merger enforcement in the digital sector. Some point to the fact that numerous acquisitions by large digital firms have not undergone sufficient scrutiny, while others propose fundamentally new theories of harm relating to data, privacy or so-called ecosystem effects.

This article examines theories of harm that were raised by the EC, the CMA and the FCO in 55 merger decisions during the past decade. Most transactions were cleared (41 unconditionally and seven with conditionally), while three were abandoned, and four were prohibited. We find that these theories of harm can be grouped into four broad categories: (i) concerns about the elimination of actual competition between the merging parties, (ii) concerns about the elimination of potential competition, (iii) concerns about the acquirer’s expansion into an adjacent market and its impact on competition there, and (iv) concerns that a dominant or very strong position in a core market is created, protected, or strengthened through mechanisms beyond eliminating (potential) competition between the merging firms (including through the accumulation of data or ecosystem effects). These categories may overlap, and many decisions discuss several theories simultaneously.

Notably, although many theories of harm advanced in digital mergers are explicitly built on the premise that the parties improve their product offerings, efficiency arguments were discussed in only nine of the 55 cases. Based on our review of these nine cases, it appears that the bar for accepting efficiencies is high in practice.

To conclude, despite calls for tougher enforcement and growing discussions around novel theories of harm, we find that the authorities have not rushed to expand their analytical toolkit. While some recent cases explored theories of harm related to data or ecosystem effects, the authorities predominantly relied on traditional tools and frameworks, albeit applied more broadly or in innovative ways. This suggests that the authorities have not been overly lenient or unable to intervene effectively in digital mergers.