Regulators around the world tasked with overseeing anti-trust regimes are asking whether current rules governing mergers are enough to protect competition in the face of the acquisition sprees of major tech companies, according to Rod Sims.
The head of the Australian Competition and Consumer Commission (ACCC) used his address to the 2019 Competition Law Conference to highlight what he said was a “growing debate” both locally and overseas “as to whether the process of competition for the market is adequately protected by the forward-looking ‘substantial lessening of competition’ test applied to mergers.”
“In our view, Google and Facebook have commercial incentives to strategically acquire nascent firms even if the chance of these firms ultimately posing a competitive threat is small,” the ACCC chair said.
“Arguably, Facebook’s acquisition of Instagram eliminated the threat of a substantial potential competitor.”
Sims said that over the past 12 years, Facebook had acquired 66 companies for a value of US$23 billion, while in the 10 years to 2014 Google acquired 145 companies for $23 billion.
Section 50 of Australia’s Competition and Consumer Act bans mergers that would have the effect, or are “likely to have the effect”, of “substantially lessening competition in a market”.
“The question is whether this is sufficient to capture acquisitions where the likelihood of a lessening of competition may be low or uncertain, but if the acquisition does lessen competition, the lessening is likely to be very substantial indeed,” Sims said.
“Some have argued that preventing large digital platforms acquiring small start-ups interferes with the incentives to innovate in the first instance,” the ACCC chair said.
“This perspective appears to be based on a view that large digital platforms are uniquely placed to develop and monetise the innovations of small start-ups.
“In my view, merger law should focus on whether the acquisition interferes with the competitive process and recognise that the process of competition for the market is not the same as the process of competition within the market.”
“If the prospect that the target will become an effective competitor is small, but the potential increase in competition and consumer welfare is large, greater weight should be put on the potential for competition,” Sims said.
Google and Facebook have both found themselves the subject of intense ACCC scrutiny.
The ACCC in late 2017 launched its inquiry into the market power of digital platform providers. In December 2018 the competition cop released its preliminary report, which included a range of proposals to rein-in the power of Facebook and Google.
The ACCC has formed the view that the duo wield substantial market power in the areas of search and digital advertising. Speaking at the a press conference shortly after the preliminary report was released, Sims revealed that the inquiry had already sparked five ACCC investigations into the possible misuse of market power.