Big Tech mergers increasingly require regulatory authorities with enhanced toolboxes. To ensure genuine competition in the digital marketplace, novel theories of harm will need to be elaborated and applied. This column provides guidance on these issues, arguing that to properly investigate Big Tech mergers, competition law will need to restructure the standards and burden of proof.

Big Tech companies frequently acquire other firms, many of them start-ups.  In a recent prominent report, Furman et al. (2019) observe that “[o]ver the last 10 years the 5 largest firms have made over 400 acquisitions globally. None has been blocked and very few have had conditions attached to approval, in the UK or elsewhere, or even been scrutinised by competition authorities.” Many of these mergers have made it possible for the acquirer to embed new functionalities in their offerings, boost the popularity of the acquired firm’s offering, or integrate the acquired firm’s staff-generating synergies. However, some mergers have arguably removed actual or potential competitors and, as a result, reduced consumer welfare.

In a new paper, we provide guidance to the debate on how to deal with Big Tech mergers (Motta and Peitz 2020). Our contribution is three-fold. First, we identify the removal of potential competitors as a pressing issue and provide a simple formal framework to assess the prospective benefits and risks from the acquisition of said competitor. Second, we review some recent theories of harm that are of particular relevance in digital industries. Third, we provide recommendations for reforming merger control so as to enable competition authorities to effectively deal with potentially anti-competitive mergers. While we see merger control as only one of many pillars to deal with competition policy issues in digital industries, we argue that effective merger control can avoid some of the competition problems that will otherwise arise and need to be addressed with anti-trust policy and possibly ex ante regulation, which also have their pitfalls. In particular, ex post antitrust control is difficult and often slow.

First, we propose a simple model of an industry that includes an incumbent firm and an entrant (this is a much-simplified version of Fumagalli et al. 2020). The entrant develops a project – a blueprint, for instance, or the idea for a new software application or prototype. If successfully developed, the entrant’s product or service would divert part of the incumbent’s demand and therefore impose a competitive constraint on the incumbent. However, development of the new product is costly, its success far from guaranteed, and the entrant may lack the necessary resources to carry it out – whether data, human capital, marketing skills, financial assets, or enough goodwill to attract external funding. While the entrant may lack the necessary resources, the incumbent is assumed to have the ability (if not the incentive) to carry out the project after a merger.

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In the base model, both firms have full information on the available and required resources and the benefits from carrying out the project either after a merger or by the entrant on its own. Without merger control, there are three situations in which a merger will be consummated.

  • If the entrant has the required resources to carry out the project, the incumbent can avoid the risk of future competition, buy the entrant firm, and shelve the project; following the literature, we call this a killer acquisition.
  • The incumbent may also buy the entrant firm and develop the project if it promises substantial value relative to its own offers; we call this an upgrade with suppressed competition, as the entrant would have developed the project and competed with the incumbent in the counterfactual to the merger.
  • The incumbent may also acquire the entrant and develop the project when the project has the potential to provide added value to the incumbent’s offer; if the entrant lacks the required resources, then there is an efficient upgrade.

A laissez-faire policy reduces consumer welfare if the entrant will carry out the project itself, which means that the merger constitutes a killer acquisition or an upgrade with suppressed competition. Prohibiting all mergers reduces consumer welfare if the merger constitutes an efficient upgrade. We extend our analysis to allow for conglomerate mergers, the presence of outside investors, and exclusionary conduct by the incumbent.

Second, merger policy in digital industries must take specific industry characteristics into account when they are key to evaluating the competitive impact of a merger. In some digital merger cases, access to data plays an important role, network effects figure prominently, or firms involved in the merger operate multi-sided platforms offering ‘free’ services to consumers. The anti-competitive concern must then be spelled out by a specific theory of harm that accounts for these industry characteristics. We point to recent research by a number of economists that sheds light on pro- and anti-competitive effects of mergers under such circumstances. Below, we mention two for illustration.

  • When firms are able to combine the installed consumer base through a merger and there are several firms willing to bid for a takeover target, the acquisition by the highest bidder may lead to a worse outcome from a consumer welfare perspective than if the acquisition were made by a firm with a lower bid. While the latter would be able to achieve critical mass with the merger, the former already has achieved critical mass but deprives the competitor from it. 
  • With a bundling strategy as part of a conglomerate merger, a dominant firm in one market may profitably expand into other competitive markets. In particular, the dominant firm may acquire a firm in the competitive market that is less efficient than its competitor. In a standard market, such a strategy would not be profitable. In the competitive market, firms compete for consumers with free offers and then monetise through advertising; the two firms consummating the merger will be able to increase joint profits as they obtain advertising revenues that otherwise would go to the competitor in the competitive market. Even though the competitor is more efficient, it cannot effectively compete for consumers when it cannot set negative prices (and has no other effective instruments to attract consumers). As a result, the merger reduces total welfare.
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Third, competition authorities tend to be ill-equipped to deal with the competition concerns attending mergers in digital industries. Under current rules, competition authorities may not even be able to review such mergers. Concerns may arise regarding the removal of potential and actual competitors that do not yet generate high revenues. Because firms in digital industries often start monetising only after reaching considerable scale, merger notifications that solely rely on meeting a turnover threshold appear to be inadequate, because competition authorities may not be able to investigate possible anti-competitive mergers.

Notification thresholds based on the acquisition price might be a useful complementary screening device.  Alternatively, a merger notification could be mandatory if the market share of the combined entity were above a certain threshold; this is the ‘share of supply’ criterion.

However, none of these notification rules would have a bite for Big Tech firms acquiring young start-ups which have not rolled out their service and sell out at a (relatively) low price. Given the possible competitive risks of such acquisitions by Big Tech, Furman et al. (2019) propose obliging Big Tech firms with a special status to notify all of their acquisitions. Implementing this proposal would give the competition authority the chance to look into these mergers and, in case of competition concerns, to assess the pros and cons of the merger. We think such a proposal deserves serious consideration.

How should a competition authority deal with a merger once it has been notified and decided to investigate? The probability that an anticompetitive effect will materialise may be low, and the probability of an improved offer due to the merger may be large, but this does not necessarily mean that the merger should be approved. The weighing of efficiency effects against anticompetitive effects would need to take account of both the likelihood and magnitude of these effects. If the improvements of an offer due to the merger are small, while the potential consumer welfare loss due to anticompetitive effects is deemed large, the decision in a merger case should not be based only on a comparison of probabilities. The correct assessment from an economic viewpoint should be based on expected benefits and costs. While this consideration may sound obvious, it is not standard practice. As stated by Furman et al. (2019), “[a] more economic approach to assessing mergers would be to weigh up both the likelihood and the magnitude of the impact of the merger. This would mean mergers being blocked when they are expected to do more harm than good.” It should also apply to the assessment of the removal of a potential competitor.

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If one of the merging parties has an entrenched dominant position, we argue that anti-competitive effects are likely to be present when the merger involves an actual or potential competitor and recommend a presumption of harm (Motta and Peitz 2020). A merger policy that reflects this presumption reverses the burden of proof in such cases, i.e. the merging parties would be required to provide evidence that the merger does not raise any significant competitive issue, or that expected efficiency gains are strong enough to overcome anticompetitive effects. This is partly reflected in the report by the Australian Competition Authority ACCC (2019), which states that it “may be worthwhile to consider whether a rebuttable presumption should also apply, in some form, to merger cases in Australia. … [A]bsent clear and convincing evidence put by the merger parties, the starting point for the court is that the acquisition will substantially lessen competition.” However, Furman et al. (2019) advise against it: “A presumption against all acquisitions by large digital companies is not a proportionate response to the challenges posed by the digital economy, and has therefore been ruled out in favour of the balance of harms approach.” 

We beg to differ. In our view, reversing the burden of proof does not require the authority to look into each and every acquisition. Instead, if it finds the proposed merger to be potentially problematic and decides to investigate, it merely has the power to force the merging partners to provide a convincing narrative and adequate documentation that the merger will benefit consumers.


ACCC (2019), Digital Platforms Inquiry, Final Report.

Fumagalli, C, M Motta, and E Tarantino (2020), “Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints”, Unpublished manuscript.

Furman, J, D Coyle, A Fletcher, D McAuley and P Marsden (2019), Unlocking Digital Competition, Report of the Digital Competition Expert Panel, March 2019.

Motta, M and M Peitz (2020), “Big Tech Mergers”, CEPR Discussion Paper 14353.