Competition agencies are pivoting towards “loss of potential competition” theories of harm, especially in acquisitions by highly dominant companies of smaller/nascent players offering a product or functionality in related spaces. The concern is broader than implied by the recent debate on “killer acquisitions.” Many say “What’s not to like?” We argue that it’s time to be more cautious. Large platforms have exceptional abilities to enter new spaces but also to “roll up” (willing) startups, buying instead of putting their own effort into rival innovation. Foregoing such effort is rarely good for society. We call these “buy vs. build” cases a form of “reverse” killer acquisitions that allow the incumbent to do away with its own innovation effort. Can we trade off the benefits of integration against this potential loss of organic expansion or should we adopt simplified policy rules to minimize the type of error we think matters most, requiring economists to pursue productive analyses of integration efficiencies, rather than the normal advocacy?

By Cristina Caffarra, Gregory S. Crawford & Tommaso Valletti1

 

I. A CASE FOR A BROADER LENS, REBUTTABLE PRESUMPTIONS AND BETTER EFFICIENCY STORIES

Competition agencies – the UK CMA, but also the EC, the U.S. agencies, and more – are pivoting heavily towards “loss of potential competition” as a theory of harm, particularly in acquisitions by highly dominant companies of smaller/nascent pl

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