The American Antitrust Institute (AAI) has released the White Paper, Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform. The new White Paper updates and expands on analysis AAI originally released in July 2019.
The widely cited 2019 AAI White Paper, The Record of Weak U.S. Merger Enforcement in Digital Technology, was the subject of AAI testimony before the Senate Judiciary Committee and drew attention to the acquisitive history of the five largest multinational online service or computer hardware or software companies: Amazon, Apple, Facebook, Google, and Microsoft (“Big Tech”). It also unpacked the history of merger enforcement under Section 7 of the Clayton Act in a major segment of the digital technology sector. The White Paper concluded that, as compared to enforcement across all sectors, the rate of merger challenges in digital technology is exceptionally low.
Since then, much has happened in the digital technology sector. Big Tech has solidified its hold on the top-most slots, by market value, in the Fortune 500. Federal and state monopolization cases have been filed against Google and Facebook. Among other things, the Facebook complaints allege that acquisitions of small rivals, such as social media firms Instagram (2012) and WhatsApp (2014), were a strategy to snuff out potential competition to maintain a monopoly in personal social networking services. The public policy debate over the dominance of Big Tech has also generated numerous proposals to remedy competitive and consumer harm, including breakups and digital market regulation. A 2020 House Judiciary Committee report examined competitive issues raised by the platforms that are at the core of many of the large digital ecosystems. Moreover, the digital ecosystems have been the subject of ongoing economic, business, and policy research, which has advanced the state of thinking over potential policy solutions to the problems they raise.
Results of AAI’s updated analysis indicate that expansion by acquisition continues to be a leading method by which the large digital ecosystems grow. Enforcers can expect to see further growth that, when juxtaposed with persistent, weak merger enforcement in the sector, will likely exacerbate competition problems. Indeed, stronger merger enforcement over the last two decades would have mitigated the monopolization concerns that AAI sees now. As it stands, however, Section 2 of the Sherman Act is virtually the only antitrust tool left to combat dominance in the digital technology sector. This White Paper turns first to updating data on acquisitions by Big Tech through 2020 and merger enforcement statistics through the latest available reporting year, 2019. It then examines the implications of Big Tech’s likely trajectory of further expansion through acquisition and growth in critical cloud infrastructure capability. It closes with an analysis of reforms necessary to revitalize merger enforcement in digital technology.