For anyone using a myriad of technological innovations to shop, chat, or stream entertainment, the benefits of mergers are in the palm of their hands. Instagram photos are shared easily to Facebook, Amazon delivers groceries straight from Whole Foods, and Android phones work seamlessly with Google. Unfortunately, however, current proposals to rewrite antitrust laws would make mergers and acquisitions more difficult and have the real possibility to deny consumers the numerous benefits they are offering.
While Big Tech is under scrutiny for how they conduct mergers and acquisitions, recent research shows the merger and acquisition behavior of Big Tech is not significantly different from other tech companies, or companies in other industries, and does not lessen competition.
One of the proposed legislation, the Platform Competition and Opportunity Act (PCOA), introduced by Sen. Amy Klobuchar, allegedly seeks to promote competition by establishing “that certain acquisitions by dominant online platforms are unlawful.” If passed, PCOA would increase the barriers to finalizing mergers for specific big tech companies. Unlike current antitrust laws, this bill would define legality based on a firm’s size. According to the proposed legislation, it would cover platforms that has “at least 50,000,000 United States-based monthly active users… or has at least 100,000 United States-based monthly active business users…or controlled by a person with United States net annual sales of $600,000,000,000 in the prior calendar year or with a market capitalization of greater than $600,000,000,000.” In practice, the bill exclusively targets big tech companies.
While a vote is still pending, Meta’s market capitalization dropped below the dollar threshold for PCOA on February 8th. The following week, Meta fluctuated around the threshold and eventually closed out the month with a market capitalization of $574 billion, well below the parameters established by PCOA, showing how arbitrary PCOA’s requirements are for covered status.
While the PCOA seeks to change current antitrust laws, the agencies responsible for antitrust enforcement—the Federal Trade Commission (FTC) and the Department of Justice’s Antitrust Division (DOJ)—are looking to update their own merger guidelines. In their request for information, they asked, “What effects should be covered by the term lessen competition?” and “How should the guidelines treat a merger that may generate monopsony power but does not substantially lessen competition in an output market?”
Questions looking to expand the guidelines and focus on firm size rather than consumer welfare represent a shift from the traditional focus on illegal behaviors that harm consumers. This focus jeopardizes the numerous consumer benefits such as convenience, choice, and connectivity that big tech companies offer consumers.
The presumptions for current changes—specifically that mergers harm competition—lack evidence. A recent report from the National Bureau of Economic Research shows that mergers and acquisitions by these firms do not lessen competition, which drives innovation and consumer benefits.
Despite what proponents of PCOA imply, mergers and acquisitions by big tech do not follow the patterns one would expect to see if the goal was to eliminate competition. As such, additional regulations would act as barriers to success and stifle the competition needed to drive innovation.
If Big Tech wanted to eliminate nascent competitors, one would expect to see the acquisition of younger firms, with high buyout prices, in overlapping industries. However, while Big Tech tends to acquire firms just over eight years old, the youngest average age of all the studied groups, tech acquisitions tend to occur with younger firms even outside of Big Tech. For example, the average age of tech firm acquisitions was just over 13 years, compared to the average age across all groups for acquired firms, which was roughly 15 years.
Furthermore, while the average price point for acquisitions by big tech companies was high, coming in at $1.5 billion compared to the overall average of $298 million. Yet, it was below the average of what other tech firms spent on acquisitions, $1.7 billion.
Additionally, acquisitions by Big Tech predominantly take place in fields unrelated to their core business. One example would be Amazon’s acquisition of Whole Foods. If the goal was to acquire nascent competitors with the intent to kill competition, acquisitions would be in their core business field.
Taken together, the research suggests that Big Tech primarily uses mergers and acquisitions to better compete in the marketplace. This competitive edge directly translates into consumer benefits in the form of innovation and consumer choice. Current legislative efforts are based on economic assumptions that are not reflected in the data. Specifically, increasing barriers to mergers and acquisitions on the presumption of non-competitiveness targets specific firms even when their behavior is in line with other businesses. Furthermore, it jeopardizes the consumer benefits derived from such mergers.