University of Amsterdam
European Competition Law and Regulation (International and European Law) Master Thesis
Friday the 8th of January 2021
Killer Acquisitions in the Digital Era
Analysing and amending the Merger Control Regulation“How can merger control rules ensure that Killer Acquisitions do not impede competition in the start-up zone of the digital era?”
Name: Naomi Nicolai E-Mail: Naomi.nicolai@outlook.com
Student ID: 12601616 Supervisor: Jan Broulik
Abstract
In the digital economy data has become a currency. Market power cannot be measured in the traditional sense of turnover and market shares, which is why Killer Acquisitions often fly under the radar. Small unseeming start-ups sometimes hold a lot of market power due to their access to unique and valuable data sets, yet their acquisitions are not notified to the Commission since they do not fulfil the currently used thresholds and therefore do not fall within the Commission’s jurisdiction. However, despite not fulfilling the thresholds of the Merger Control Regulation, they can have a significant impact on competition. Moreover, the current substantive test of identifying and weighing anti-competitive effects in mergers is also unsuitable for detecting acquisitions in the digital sector which aim to kill the product of a nascent firm. This paper takes a look at the current legal framework, the legal loopholes used, and the proposed changes to fix them. It looks at Regulation 139/2004 and proposals by various scholars on possible amendments to be made, as well as the example of Germany’s new value threshold.
After analysing the proposed changes from different sources and reflecting on their applicability, this paper proposes to add elements of the OECD Framework to the current substantive test used by the Commission, as well as the German jurisdictional threshold. Aside from broadening the Bundeskartellamt’s jurisdiction, the German test also includes the OECD criteria suggested for the substantive test and can therefore be considered as a model example. Implementing it into the merger control rules would enable the Commission to investigate possible Killer Acquisitions.
Table of Contents 1. Introduction 2. Killer Acquisitions
2.1 Killer Acquisitions in the digital era 3. Council Regulation (EC) No 139/2004
3.1 Community dimension 3.2 Notification
3.3 Concentration Assessment 3.4 Issues with current policy 4. Possible improvements
4.1 Jurisdictional threshold
4.1.1 Germany’s new threshold 4.2 Substantive assessment
4.2.1 Rebuttable presumption of anticompetitive effects 4.2.2 OECD Framework suggestion
4.2.3 Expected harm test
4.2.4 Innovation based Theory of Harm 4.2.5 Commission ‘Competition Law 4.0’ 5. Conclusion
1. Introduction
With the emergence of start-up culture Killer Acquisitions have become more impactful. Digital conglomerates, the so-called tech giants have participated in this practice for the past decade, with the five largest companies acquiring over 400 companies globally according to the Digital Competition Expert Panel.12
Holmström noted in his paper about Killer Acquisitions that “there are growing fears that such acquisition sprees might be a systematic market foreclosure strategy, under the radar of competition authorities, that threaten innovation and potential competition alike”.34
Nascent acquisitions can have multiple outcomes. The acquired company can be integrated into the company structure and strengthen or expand the dominant position of an incumbent, or the acquired company can be killed to eliminate or lessen competition by discontinuing the development of the targets’ innovation projects and pre-empt future competition.5 To be more precise, this means a
company buys and shuts down a nascent firm’s product to avoid suffering an expected loss of revenue when the nascent firm’s product matures or to avoid cannibalisation of its own sales if it continues to develop and operate the project.6
The reason Killer Acquisitions happen is therefore the elimination of potential horizontal competition. In start-up culture this would mean that a large established company may buy a start-up whose project if matured could dilute the company’s
1 M Holmström and others, ‘Killer Acquisitions? The Debate on Merger Control for Digital
Markets’ (Social Science Research Network 2018) SSRN Scholarly Paper ID 3465454 1, 2 <https://papers.ssrn.com/abstract=3465454> accessed 10 July 2020.
2 Google Android (Case AT40099) Antitrust Procedure C(2018) OJ C 402/08.
3 M Holmström and others, ‘Killer Acquisitions? The Debate on Merger Control for Digital
Markets’ (Social Science Research Network 2018) SSRN Scholarly Paper ID 3465454 1, 2 <https://papers.ssrn.com/abstract=3465454> accessed 10 July 2020.
4 Google Android (Case AT.40099) Antitrust Procedure C(2018) OJ C 402/08 (n 2).
5 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
6 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
user base.7 Start-ups such as social platforms can often only be monetised at a late
stage in their existence, creating the impression of a far less influential undertaking even though their access to unique and valuable sets of data grants them an enormous advantage in creating targeted advertising, predicting consumer behaviour and the ability to react correspondingly by capitalising on their information.8 This makes them a strong competitive threat to larger more
established undertakings that wish to maintain their hold on the market. Moreover, start-ups that centre around innovation have the potential to disrupt the market, making it advantageous for larger more established companies to suffocate them before their products are rendered irrelevant in the wake of change.9 The
acquisition of start-ups can be very beneficial to both the acquiring party – the acquiring party can capitalise on innovation and therefore integrate new products or services into the company’s portfolio – and also beneficial to the start-up by providing much needed resources, such as capital.10 However, if a dominant
undertaking acquires a start-up to discontinue the innovative projects of the firm, it eliminates future competition, potentially harming consumers and creating or strengthening a dominant position.11 When competition is distorted it can
potentially cause harm to the market, as it also hinders innovation, which is one of the key driving forces for economic growth and raising the standard of living. A monopolist has no reason to innovate.12 Killer Acquisitions are often not caught
by merger control due to the turnover thresholds not being met, which is why there
7 M Holmström and others, ‘Killer Acquisitions? The Debate on Merger Control for Digital
Markets’ (Social Science Research Network 2018) SSRN Scholarly Paper ID 3465454 1, 2 <https://papers.ssrn.com/abstract=3465454> accessed 10 July 2020.
8 ibid. 9 ibid.
10 J Crémer and others, ‘Competition Policy for the Digital Era.’ (2019)
<http://publications.europa.eu/publication/manifestation_identifier/PUB_KD0419345ENN> accessed 10 July 2020.
11 ibid.
has been recent discussion among scholars as to whether the Merger Control Regulation should be amended to better filter such occurrences.13
This thesis will examine the Merger Control Regulation and why and how Killer Acquisitions go unnoticed, the negative effect they have, as well as possible solutions to the situation in the form of amendments to the current form of assessment. It will analyse the issue of classification and assessment of mergers as being anticompetitive, which would then enable the possibility for them to fall under the Merger Control Regulation and therefore the jurisdiction of the Commission.
To do so it will first introduce the topic of Killer Acquisitions in the digital era, paying due regard to start-ups that are influential, but evade the European Merger Control Regulation (hereinafter ‘EMCR’) due to their lack of turnover in point 2.14
This is to illustrate how pertinent Killer Acquisitions are in the industry, and why they are relevant in the digital industry.
It will then discuss the Council Regulation (EC) No 139/2004 in point 3, which is the relevant legal framework for merger control and will elaborate on how to establish a concentration and the Community dimension. It will first be explained what a concentration is and what constitutes a Community dimension, as this is the threshold nascent acquisitions and therefore Killer Acquisitions fail to attain, the reason for which was stated in the introductory paragraph of this Thesis. The Community dimension includes two alternative sets of turnover thresholds which need to be met in order for a merger or acquisition to be notified. If one set of turnover thresholds is satisfied the merger is deemed to have a Community dimension and it automatically fulfils the jurisdictional threshold.15 This means it
13 ‘Merger Control Reform: Capturing Transactions in the Digital Markets | Global Law Firm |
Norton Rose Fulbright’
(https://www.nortonrosefulbright.com/en-de/knowledge/publications/imported/2018/07/18/05)
<https://www.nortonrosefulbright.com/en- de/knowledge/publications/9eb81dda/merger-control-reform-capturing-transactions-in-the-digital-markets> accessed 1 October 2020.
14 ‘Merger Control Reform: Capturing Transactions in the Digital Markets | Global Law Firm |
Norton Rose Fulbright’ (n 13).
15 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
needs to be notified to the Commission. Killer Acquisitions, as previously mentioned do not always meet these thresholds, which is the main reason they go undetected.16 It will be explained in detail what those thresholds look like and how
the notification procedure works, to give a full understanding of the current legislation. While the jurisdictional threshold will be addressed, the focus of the Thesis lies on the substantive test of the EMCR and how it can be improved to better identify Killer Acquisitions.
This thesis will then discuss possible amendments to the EMCR in point 4. It will introduce several suggestions as to what possible improvements could be made to the framework, engaging the ‘Competition Policy for the digital era’ report of 2019, as well as the Background Notice of the OECD of May 2020 concerning ‘Start-ups, Killer Acquisitions and Merger Control’. It will first illustrate the example of Germany, which has introduced a new jurisdictional criterion allowing the competition authorities to investigate nascent acquisitions, and thus possible Killer Acquisitions. The novel ‘Value’ threshold is complementary to the existing European turnover threshold. It will then elaborate on various substantive suggestions ranging from creating a rebuttable presumption of anticompetitive effects for nascent acquisitions, to introducing an expected harm test to remove a systematic bias against challenging mergers by clarifying and placing greater weight on potential competition. Furthermore, it was suggested that a new innovation-based theory of harm could be used, tailored to the digital sector that examines potential competition in respect to the main capabilities and inputs needed, meaning data, engineering skills, high computation power and risk capital. The suggested improvements will be elaborated on in further detail, such as what an expected harm test would look like and how potential competition is and can be assessed.17
16 Chris Pike, ‘Start-Ups, Killer Acquisitions and Merger Control’ (Social Science Research
Network 2020) SSRN Scholarly Paper ID 3597964 <https://papers.ssrn.com/abstract=3597964> accessed 10 July 2020 13.
17 ‘Bundeskartellamt - Homepage - Guidance on Transaction Value Thresholds for Mandatory
Pre-Merger Notification’
<https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Leitfaden/Leitfaden_Transaktion sschwelle_Draft.html?nn=3600108> accessed 5 November 2020.
Lastly, this thesis will relay its findings in the conclusion, and advise on what modification would be most beneficial and feasible if implemented.
This Thesis takes a scholastic approach and introduces an individual point of view, based on other scholar’s opinions, such as Shapiro and Hovenkamp, Valletti and Motta and Denicolo and Polo.
The Thesis examines the EMCR and its relevant thresholds and the pertaining guidelines. It uses the Competition Policy for the digital era report, as well as the Background Notice of the OECD and the Stigler report to provide amendments to the EMCR. The Shapiro and Hovenkamp and Valletti and Motta comment on a rebuttable presumption of anticompetitive effects. Germany’s new threshold is discussed in the OECD Note on Start-ups, Killer Acquisitions and Merger Control by Germany.
2. Killer Acquisitions
2.1 Killer Acquisitions in the digital age
Killer Acquisitions have so far been prevalent in the pharmaceutical industry, where they are also sometimes referred to as ‘shoot-out acquisitions’. Recently however it has become a term of discussion in the tech debate due to papers, such as Cunningham’s paper titled ‘Killer Acquisitions’, and economics Nobel prize winner Jean Tirole referencing it in his opening speech to the European Commission’s ‘Shaping competition policy in the era of digitisation’ conference in January 2019.18 Many start-ups aim to build a broad customer base, without
much regard for short-term profits, hoping to either be acquired by a larger company and therefore obtain important financial support or to monetise its user base in the future. Therefore, the true competitive potential of such companies cannot be fully assessed due to the many unknown variables and more importantly, will not be reflected in their current turnover, making it difficult to assess the ‘Community dimension’ of a merger. If they are acquired by a larger undertaking the merger might go unnoticed, even though its impact can be huge.19 Moreover,
18 Holmström and others (n 1) 3. 19 Crémer and others (n 9) 110.
the acquisition of firms with specific data resources can create a concentration in control of valuable and non-replicable data sets that allows the merging parties unique access when combined to valuable data troves, which have the potential to strengthen or create a dominant position.20 This lack of quantitative evidence of
the effect of mergers in digital markets can be further observed in Facebook’s acquisition of WhatsApp and Instagram. As Tirole expressed at the ‘Shaping competition policy in the era of digitisation’, these acquisitions could very well have been anticompetitive yet there was no way to prove that they were. Both WhatsApp and Instagram are social networks that could have very well grown to be competitors of Facebook, nevertheless in the absence of data this is impossible to substantiate, according to Tirole.21 When an incumbent acquires a Maverick
firm, they also acquire vast quantities of data that would allow them to foresee, predict and react to changes in the market or consumer behaviour, a capability which awards the start-up with market power and the potential to form or solidify the acquiring parties dominant position. This is called social media mining; big data of user-generated content is used to draw conclusions about users and utilised to create targeted advertising or if analysed in bulk to predict shifting trends. By analysing consumers behaviour companies can observe connections between individuals, online buying behaviour, sharing of content and social media usage.22
Moreover, as users engagement with social media posts is often based on positive or negative sentiment, companies are able to measure homophily; the tendency of two individuals becoming friends.23 If one undertaking were to own all the largest
social networks it would grant them unique and unparalleled insight into consumer behaviour, granting them a major competitive advantage. This highlights why a merger that might not be notified due to the turnover threshold can still carry a large impact, more so if the sole purpose of it is to kill the nascent firm and solidify one’s own position in the market. In view of the power and influence such
20 ibid 110.
21 Holmström and others (n 1) 3.
22 ‘Zafarani, Reza; Abbasi, Mohammad Ali; Liu, Huan (2014). “Social Media Mining: An
Introduction”. Retrieved 15 November 2014.’
information wields, according to some scholars, such as Jean Tirole, Killer Acquisitions are a growing concern in the digital economy.24
3. Council Regulation (EC) No 139/2004
The governing instrument for mergers is the EMCR, the aim of which is to provide a governing instrument for these concentrations, so as to create a one-stop-shop system within the Union at a Community level.25 It is clearly stated that this
Regulation is not applicable to situations of national Member States, but can be referred to the Commission in certain situations.26 For a merger to be subject to
revision by the Commission it must then be established that there is a Community dimension, making it subject to EU law.27
The following subsections highlight how a concentration is defined, what the Community dimension threshold entails and how a concentration is assessed.
3.1 Community dimension
The concept of a concentration is defined in Article 3 EMCR and Chapter B.2 of the Consolidated Jurisdictional Notice.28 It is specified that a concentration is
present where there is a lasting change of control which arises from the merger of undertakings or parts of undertakings, or by one or more persons obtaining direct or indirect control of a whole or parts of one or more undertakings.29 Control can
be sole, in the form of veto rights for a minority shareholder for example, or jointly
24 Holmström and others (n 1) 3. 25 Whish and Bailey (n 29) 20, 21.
26 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 r 8, 9, 10, 11, 12, Art, 22.
27 ibid.
28 Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004
on the control of concentrations between undertakings OJ C 95, 16.4.2008.
29 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 Art. 3.
held, with a full joint venture also being classified as a concentration.30 The
following section will elaborate on the Community dimension which defines whether a pending merger falls within the Commission’s jurisdiction.
Article 1 of the EMCR states that “this Regulation shall apply to all concentrations with a Community dimension as defined in this Article”.31 The provision then
continues to establish what a Community dimension entails. A Community dimension exists where;
2. A concentration has a Community dimension where:
(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and
(b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million,
unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
3. A concentration that does not meet the thresholds laid down in paragraph 2 has a Community dimension where:
(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2500 million;
(b) in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million;
30 Whish and Bailey (n 29) 855, 856.
31 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 Art. 1.
(c) in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and
(d) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million,
unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.32
As can be seen, the threshold relies heavily on turnover, excluding any merger that falls below it from the Commission’s jurisdiction. The relevant turnover is calculated from the net turnover of the previous financial year and derived from the normal business of the undertaking.33 Given that start-ups do not necessarily
fulfil these thresholds they escape the Commission’s jurisdiction.
3.2 Notification
When a concentration fulfils the conditions of a Community dimension it must be notified. The notification to the Commission can take place in accordance with Article 4 EMCR after the agreement has been made, and is conducted in coherence with Annex I of Regulation 802/2004.34 Mergers which do not fall under the
Commission’s jurisdiction can still be notified for review by Member States via Articles 4(5), 9 and 22.35 There is also a simplified procedure for joint ventures
32 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 Art. 1.
33 Whish and Bailey (n 29) 863.
34 Commission Regulation (EC) No 802/2004 of 7 April 2004 implementing Council Regulation
(EC) No 139/2004 on the control of concentrations between undertakings (Text with EEA relevance) OJ L 133, 30.4.2004 Art. 4(4).
35 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
with negligible activities in the Union, transactions where parties combined market share is below 20%, parties that are switching from joint ownership to sole ownership and mergers that have a combined market share of less than 50% and less than 150 HHI.36 The approach utilises the Herfindahl-Hirschman Index which
is often used by the Commission to measure concentration levels. It is calculated “by summing the squares of the individual market shares of all the firms in the market” and attributes greater weight to the market shares of larger undertakings.37
The HHI can provide an initial estimation of competitive constraints in the market after the merger has taken place, changing the HHI which is then known as the “delta”. Delta is one option to determine a shift in concentration post-merger.38
While the concentration is being investigated it is automatically suspended for the time being.39
If a concentration would be subject to the Member States merger control rules, the parties concerned can make a reasoned submission why the Commission should be the one to review the merger. Should one Member States express disagreement then the request will be denied. If there is no disagreement in the given period of time the concentration is deemed to have a Community dimension and will fall under the Commissions jurisdiction.40 Moreover, the Commission may intervene
if Member States are trying to somehow hinder or otherwise obstruct a concentration with a Community dimension under the legitimate interest clause.41
If a merger has a Community dimension and is notified to the Commission, the Commission performs an in depth analysis of the concentration at hand to determine if it violates Union law.
36 Commission Notice of 5 December 2013 on a simplified procedure for treatment of certain
concentrations under Council Regulation OJ [2013] (EC) No 139/2004.
37 ibid. 38 ibid.
39 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 Art. 7(1).
40 Whish and Bailey (n 29) 871.
41 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) (Text with EEA relevance) OJ L 24, 29.1.2004 Art. 21(4).
3.3 Concentration Assessment
Whether a concentration is present is determined under Article 2 EMCR, stating that the objective is to determine whether the concentration in question is compatible with the common market.42 Among other things the actual or potential
competition of an undertaking within or without the Community and its market position shall be taken into account. The substantive test that was first used to determine whether a concentration is compatible with the internal market was the dominance test. It determined a concentration incompatible with the internal market if it significantly impeded effective competition, particularly if it strengthened a dominant position.43 This scenario, however, excludes
non-collusive oligopolies, meaning that a merger which would hamper competition but not create dominance (55-45%) would not fall under the scope of the test. The EMCR then introduced the SIEC Test; significant impediment of effective competition.44 The SIEC test does not solely rely on a dominance criterion, but
also allows the Commission to investigate if the concentration would ‘significantly impede competition’.45 The Court then further determined in France v
Commission that there must be a causal link between the concentration and any deterioration to the competitive structure in the market. The test also involves an assessment of the ‘counterfactual’, which is a comparison of the situation with the merger and without the merger.46 Furthermore, Article 2(1) contains the appraisal
criteria, criteria the Commission must take into account when assessing concentrations. The criteria include the need to maintain effective competition within the internal market, the structure of the market as such and the actual and potential competition of undertakings within and without the Union. Furthermore the Commission must consider the “market position of the undertakings concerned and their economic and financial power, the alternative available to suppliers and users, their access to supplies or markets, any legal or other barrier to entry,
42 Whish and Bailey (n 29) 886. 43 ibid.
44 ibid.
45 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) OJ L 24, 29.1.2004 Art. 2.
supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers, and the development of technical and economic progress provided that it is to consumers’ advantage and does not form an obstacle to competition”.47
The current assessment contains three elements: The Notification on the definition of the relevant market, Guidelines to assess factors for horizontal mergers and Guidelines for the assessment of non-horizontal mergers. The basis of market definition for mergers is the Commission’s Notice on Market Definition, which includes the SSNIP test.48
The specific stipulations that need to be taken into account for the relevant market in case of a horizontal relationship can be found in Sections 6 to 8 of the official forms for standard merger notifications. In the case of horizontal mergers, a relevant concentration exists where two or more parties have a combined market share of 20% or more, or in a vertical relationship 30% or more combined or sole market share. Moreover the total size of the market, the HHI, details on barriers of entry, the structure of supply and demand and the financial reports need to be taken into account.49 The process can take quite some time, as mergers often involve
more than one relevant market, especially in multi-product firms.50
The concentration threshold for horizontal mergers is further explained in the Guidelines, listing market shares and concentration thresholds, the likelihood that a merger would have anti-competitive effects, countervailing buyer power, the possibility of entry into the market as a competitive constraint, efficiencies and failing firms to be considered.51 A merger is presumed to be compatible with the
internal market if its market share does not exceed 25% and the post-merger concentration levels should not exceed HHI of <1000, or <2000 and delta <250, or >2000 and delta <150, unless there are special circumstances, or one of the
47 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) OJ L 24, 29.1.2004 Art. 2.
48 ‘Institut Für Genossenschaftswesen | UK-Glossar’
<http://www.wiwi.uni-muenster.de/06/nd/studium/uk-glossar/?tx_drwiki_pi1%5Bkeyword%5D=SSNIP%20Test> accessed 3 November 2020.
49 Whish and Bailey (n 29) 888. 50 Bayer/Aventis Crop Science. 51 Whish and Bailey (n 29) 889.
parties had more than 50% shares before the merger.52 A merger can also be
accompanied by non-coordinated effects, which is one of the most common grounds for intervention of the Commission. Non-coordinated effects award undertakings the ability to unilaterally raise prices. Coordinated effects are what might arise when it becomes possible to coordinate better. Therefore, coordination is allowed, but subject to the Horizontal Merger Guidelines of the Commission, which closely monitor the terms and conditions of the merger, as well as implementing a credible deterrent mechanism for non-coordinated effects.53
Following the market share assessment, buyer power should be countervailed, and the possibility of creating competitive constraints for new entrants taken into account. This includes assessing the likelihood of the entry being sufficiently profitable, the timeliness and the sufficiency of the entry. To determine that there are constraints to new entrants, the newcomer must enter the market within the next two years after the merger, and the entry must be of sufficient scope to defer the anti-competitive effects of the merger.54 Lastly, efficiencies are taken into
account, namely the benefit to consumers, which must be merger specific and verifiable. However they do not suffice as a sole basis for allowing for a problematic merger.55 It is also relevant to note that problematic mergers can be
allowed if they include failing firms, who can only be saved by a merger and whose assets would be lost from the market if the transaction was blocked.56
As for Guidelines concerning vertical mergers, these are more precisely defined in the Guidelines on the assessment of non-horizontal mergers document. They are applicable to vertical and conglomerate mergers, which are generally deemed to be less harmful than horizontal mergers, as there is no direct loss of competition.57
Should the market share of the post-merger entity be less than 30% and the HHI be lower than 2000 then the merger bears no competitive concerns. This excludes special circumstances, such as the removal of ‘Maverick’ firms from the market,
52 ibid. 53 ibid 894. 54 ibid 896. 55 ibid 897. 56 ibid 898. 57 ibid 899.
firms that were set to very likely disrupt the market. The non-coordinated effects of a vertical mergers can lead to input foreclosure, which means a restriction to products in a downstream market is restricted and customer foreclosure, which means the access to customers of potential rivals is hindered or restricted.58
Coordinated effects of vertical mergers would allow the concerned parties to better monitor deviants, possibly implement deterring mechanisms and react to outsiders, but are permitted under certain conditions.59 Potential efficiencies are analysed in
the same way as for horizontal mergers and conglomerate mergers are assessed in the same way as vertical mergers. Moreover, Joint Ventures are also assessed as vertical mergers, excluding the circumstances of ancillary restraints or a spill-over effect.60
However even if a merger fulfils the Community dimension it can still be found to be compatible with the common market if it does not impact competition negatively. The Commission can assess this on the basis of Article 2 of the Treaty establishing the European Community and Article 2 of the TEU. Likewise, if a merger appears to be problematic it can still be remedied. The Commission may attach conditions and obligations to its decision to clear a merger, but it may not do so unilaterally. The parties in question must offer the remedies themselves however, if they do not comply the merger can be dissolved or a fine of up to 10% of the parties’ aggregate turnover can be imposed. Some of the more popular remedies are structural remedies, such as providing access to competitors for key infrastructure or divestiture of business.61
3.4 Issues with current policy
It is currently hotly debated whether the Merger Control Regulation appropriately accounts for a variety of issues which have become more and more apparent in the digital economy. The more dominant players in the area have taken on a rather fast
58 ibid 900. 59 ibid 901. 60 ibid 902. 61 ibid 907 ff.
pace in takeovers raising concerns that some start-ups may not even attempt to enter their markets due to a fear of ending up in the ‘kill-zone’.6263
As previously stated, the main obstacle for filtering out Killer Acquisitions are the turn-over thresholds of the EMCR. This can be demonstrated in the Facebook / WhatsApp merger, which was not a Killer Acquisition but shows quite clearly why acquisitions of start-ups might go unnoticed. WhatsApp was acquired by Facebook in 2014, when it had barely any turnover, but a user base of over 450 million customers world-wide.64 For start-ups this often means that even though they have
a lot of customers and access to unique and valuable sets of data, they do not satisfy the threshold of Article 1 EMCR.65 However, mergers which do not have a
Community dimension but could be reviewed under national legislation can still be referred to the Commission by way of Article 4(5) or Article 22 and reviewed through this path. So, what about start-ups that would not be notified in the national competition law systems of the Member States? What about the potential Maverick firms that have little turnover and a moderate number of users, with access to invaluable sets of data that are bought and killed by large incumbents? These are not reflected in the EMCR and fall through the cracks.
Another issue that has been highlighted is Market definition in the digital field. The relevant market, as mentioned is usually determined by the SSNIP test. However, with tech start-ups this is not always easy as they might not be in direct competition with the incumbent due to strong network effects.66 This makes it
nearly impossible to determine direct competition, when working off the premise of future competition. Start-ups often develop on the outer edge of the market, to then over time become a viable competitor.67 One approach is to broaden the
market definition; however, this also creates path-dependence and makes it more difficult to prove abusive behaviour later on. Nevertheless, it is suggested in
62 ‘Stigler Committee on Digital Platforms: Final Report’ (The University of Chicago Booth
School of Business 2019).
63 ‘A New Competition Framework for the Digital Economy’ (Federal Ministry for Economic
Affairs and Energy) Report by the Commission ‘Competition Law 40’ 64.
64 ibid.
65 Holmström and others (n 1).
66 ‘A New Competition Framework for the Digital Economy’ (n 65) 28. 67 ibid.
Schweitzer et. al as a possible reform for German competition law in its next review.68 Schweitzer et. al also argued that the SSNIP test does not apply to the
digital economy, as the test works off of the premise what consumers would do in the event of a price increase, not regarding the fact that most digital platforms are free. Therefore, perhaps the more appropriate assessment would be whether consumers would switch providers in the event of a decline in quality of the services provided.69 Moreover, in the Notice on the Definition of the relevant
market potential competition is not taken into account when determining the relevant market, but rather once a dominant position has been established.70
As the introduction has stated the five largest firms have made over 400 acquisitions on a global scale, raising growing concerns that these sprees might be a systematic market foreclosure strategy. Most of these acquisitions go unnotified, which has created the fear that these mergers have been ‘pre-emptive’ in order to eliminate potential Maverick firms in an early stage and neutralise the competitive threat.71 While the EMCR does specify that successive acquisitions within a
two-year period are to be determined as a single concentration, the time frame it inspects is limited.72 In the Guidelines on the Assessment of Horizontal Mergers
it is stated that the company to be acquired must “exert a significant constraining influence or there must be a significant likelihood that it would grow into an effective competitive force” for it to be considered as having anti-competitive effects.73 This formulation does not account for possible systematic foreclosure
strategies. The individual acquisitions in themselves may not appear to bear any anti-competitive effects, but looking at them as cumulative events might lead to a very different conclusion.
68 ibid. 69 ibid. 70 ibid 31.
71 Holmström and others (n 1) P.2.
72 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation) OJ L 24, 29.1.2004 r. 20.
73 Guidelines on the assessment of horizontal mergers under the Council Regulation on the
These are some of the issues of the merger regulation and the digital economy and there have been various suggestions as to their solution, some of which are highlighted in the next section.
4. Possible Improvements
4.1 Jurisdictional threshold
4.1.1 Germany’ new threshold
The aim of Germany’s new framework does not intend to target the theories of harm surrounding the subject, but to make sure Killer Acquisitions do not escape the grasp of the law anymore. In its OECD note, Germany specified that potential competitive threats are an important driving force in the market and therefore should be protected. The aim of Germany’s framework is to expand the review of merger control, introducing a novel threshold not solely focused on the turnover generated, but rather the transaction value.74 This threshold aims to include the
mergers which are market-relevant in the digital economy, but would not be notified due to the turnover not being sufficiently high.75 The change in regulation
was largely prompted by cases such as the Facebook and WhatsApp merger. WhatsApp had only 55 employees at the time of the acquisition and only 10 million Euro revenues, which did not satisfy the thresholds and was therefore not notified. However, WhatsApp reached millions of people due to its free services and therefore had enormous competitive potential, which was reflected in the buying price of 19 billion US dollars. Due to these perceived gaps in the Framework, Germany decided to create a threshold attempting to catch such situations, complementing the pre-existing provisions to create a more targeted approach. In addition to fulfilling the existing turnover thresholds, a merger can be investigated if;
74 ‘Merger Control Reform: Capturing Transactions in the Digital Markets | Global Law Firm |
Norton Rose Fulbright’ (n 13).
75 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Note by Germany’ (2020) <https://one.oecd.org/document/DAF/COMP/WD(2020)20/en/pdf>.
• The combined aggregate worldwide turnover of all undertaking concerned was more than 500 million euros and,
• The domestic turnover of one undertaking concerned was more than 25 million euros and, neither the target’s nor any other party’s domestic turnover exceeds 5 million euros and,
• The consideration for the acquisition exceeds 400 million euros and • The target company has substantial operations in Germany76
The value of the consideration includes all assets and other monetary benefits that the seller receives from the buyer in the merger. The term “asset” is hereby interpreted quite broadly, including cash payments, securities, tangible assets, transfers of voting rights and intangible assets.77 This definition also includes
stipulations made on conditions or turnover, such as licence fees or payments for non-competition. The value assessment in this case only applies to the concerned merger in question and does not cover shares that were previously exchanged or owned, but rather the company value calculated on the basis of business methods and the purchase price.78 The purchase price is of course highly subjective and is
rather a reflection of how the buyer believes an acquisition will develop within his business structure over time. Rather the value consideration is intended to be assessed on a case-by-case basis to determine whether it is part of a singular merger, or systemic acquisitions for example, which would then also factor into the value assessment.79
The second interesting criterion is for the concerned parties to have ‘substantial operations in Germany’. It is intended to exclude companies that exclusively operate abroad, focusing on companies that exclusively or primarily operate on the domestic market. Such a company is presumed to have a substantial level of domestic activity and falls within the scope. A substantial level of activity is not determined on the basis of turnover, but rather on the target company’s market related activities. The precise criteria to determine said activity is sector specific
76 ibid 3. 77 ibid 4. 78 ibid 4. 79 ibid 4.
and would need to be adapted on a case-by-cases basis rather than a one-size-fits all approach.80
To accommodate for the issue of market definition Germany has developed an alternative solution to determining the relevant market and therefore the ‘kill zone’. They have proposed to define markets based on the basic needs to capture disruptive challenges; “One can assume a significant impediment to effective competition if it can be shown that also and especially such firms are acquired that have a recognizable and substantial potential to become a competitor in the medium term. One indication for such potential could be that the acquired competitor serves the same or similar consumer demand as the dominant company based on broader defined basic needs instead of (more) tightly defined product or service markets”.81
Moreover, Germany has addressed the issue of cumulative acquisitions, stating it can be considered as proof of a strategic elimination of potential future competition. Previous acquisitions made by firms have already been taken into account in past German court cases, such as CTS Eventim/Four Artists, Edeka/Tengelmann, and E.on/Stadtwerke Eschwege, placing the focus on continuous growth of a dominant position in a specific relevant market.82
As stated, Germany’s new value-based threshold is quite new and therefore lacks the case law to show its application. However, it has been criticised for lowering the threshold and potentially creating an influx of false positives. Moreover, the test has been criticised for blurring the lines of jurisdiction by using the phrase ‘significant’ activities. It is unclear what this means exactly, and it goes against the consensus that criteria for the assessment of jurisdiction in mergers and acquisitions should be as clear and simple as possible.83
80 ibid 5.
81 Holmström and others (n 1) 16. 82 ibid 17.
83 Prof Dr D Schroeder and others, ‘Germany and Austria Introduce Transaction Value Merger
Next to that, it has been criticised that the meaning of value is not set and therefore would need to be defined first, with parties possibly having to request guidance from the Bundeskartellamt on whether or not they meet the threshold.84
The Commission on the other hand has watched the development in Germany closely and has confirmed it plans to re-evaluate its turnover threshold and issue a public consultation to do so. Commissioner Vestager seemingly supported the change in assessment by stating that considering the value of an acquisitions or merger could provide a good indication of its importance. She further highlighted the importance of setting the threshold at a reasonable level and establishing an EEA link.85
Furthermore, the value-based threshold does not determine an automatic prohibition of the merger in question, but rather enables the merger to be examined in the first place. It does not imply that all high transaction value mergers are to immediately be classified as Killer Acquisitions, but merely to ensure that the transaction price reflects the future revenues expected by the target.86
In light of these remarks, the German model could be a good basis to launch a review of the merger control regulation and create a better system to assess mergers appropriately.
4.2 Substantive assessment
4.2.1 Rebuttable presumption of anticompetitive effects Besides introducing jurisdictional changes, it is also a possibility to undertake changes in the substantive assessment of mergers and acquisitions to better filter out Killer Acquisitions. One of the possible amendments discussed by the OECD Background Note on start-ups, killer acquisitions and merger control is to have a “rebuttable presumption of anticompetitive effects for nascent acquisitions by
84 ‘Merger Control Reform: Capturing Transactions in the Digital Markets | Global Law Firm |
Norton Rose Fulbright’ (n 13).
85 ibid.
86 Marc Bourreau and Alexandre de Streel, ‘Digital Conglomerates and EU Competition Policy’
(Social Science Research Network 2019) SSRN Scholarly Paper ID 3350512 <https://papers.ssrn.com/abstract=3350512> accessed 10 July 2020.
dominant incumbents, either in general or where the acquisition increases the risk of competitive harm, for example, that there were a reasonable (25-30%) prospect of harm”.87 In the proceedings of a merger the merging firms enjoy the benefit of
the doubt as to whether the mergers will produce anticompetitive effects. Mergers which cannot be confidently identified as producing harmful effects to consumers are generally permissible. The rebuttable presumption of anticompetitive effects is American in nature, established in the case of United States v. Philadelphia National Bank would shift the burden of proof onto the merging firms in certain circumstances.88
The approach utilises the HHI, which may provide an initial indication of anticompetitive effects in the market post-merger, with Delta being used to identify the shift in concentration.89 The acceptable probability of harm in the case
in question was referenced to the 34-36% with a HHI of 2000-2100.90
A rebuttable presumption of dominance currently exists in the Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings. In the Guidelines it is determined that having a market share of 50% or more may in itself be evidence of a dominant position, but the Commission has also considered that undertakings with market shares between 40% and 50% can lead to the strengthening or creation of a dominant position.91 The Guidelines further define that if an undertaking has a
post-merger HHI below 1000 it shall not raise any competition concerns. Furthermore, it is stated that the Commission is not likely to raise competition
87 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
88 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) P 33 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
89 Guidelines on the assessment of horizontal mergers under the Council Regulation on the
control of concentrations between undertakings OJ C 31, 5.2.2004, 5–18.
90 The HHI is the Herfindahl-Hirschman Index, it sums up the squares of the individual market
shares of all competitors in a market and concludes the higher the total, the more concentrated the market is.
91 Guidelines on the assessment of horizontal mergers under the Council Regulation on the
concern with a post-merger HHI between 1000 and 2000 and a delta of below 250, or an HHI above 2000 and a delta below 150, except where there are special circumstances.92 The list of circumstances involve: mergers in which one party is
a potential new entrant or a recent entrant with small market share, “one or more merging parties are important innovators in ways not reflected in market shares, there are significant cross-shareholdings amongst the market participants, one of the merging firms is a maverick firm with a high likelihood of disrupting coordinated conduct, indications of past or ongoing coordination or facilitating practices are present, one of the merging parties has a pre-merger market share of 50% or more”.93 The guidelines further specify that while the HHI may give an
initial indication of the absence or presence of competitive concerns, it does not give rise to a presumption of the presence or absence of competitive concerns.94
The suggested presumption would therefore be a stricter version of an existing measure. The HHI is criticised by scholars such as Wish and Bailey for its inability to reflect dynamism and innovation, stating that there are more sophisticated methods of assessment.95 In Spar Österreichische Warenhandels v Comission the
General Court rejected a claim that the Commission acted unlawfully in neglecting to use the HHI.96
However, scholars such as Shapiro and Hovenkamp argued that the threshold should be even stricter and that the merging parties should be required to provide “clear and convincing” evidence that the merger would not cause and “increase in concentration in any properly defined relevant market”.97 This presumption was
also proposed by Professors Valletti and Motta in the report on Competition in the digital era, stating that the presumption should for one require evidence that the merger would not impede competition, or that the expected sufficiency gains would outweigh the impediment. Should the parties in question fail to do so then
92 ibid. 93 ibid. 94 ibid.
95 Whish and Bailey (n 29) 44.
96 R Whish and D Bailey, Competition Law (Ninth Edition, Oxford University Press).
97 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) P 33 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
the merger should be blocked.98 The main emphasis of the suggestion is that the
presumption is rebuttable as opposed to the status-quo. If one of the parties enjoys a dominant position in the market, they would be forced to provide evidence that the expected efficiencies are significant enough to justify the acquisition. The presumption would not dismiss the possible existence of any efficiencies that might outweigh the possible competition concerns, it would also not assume that such efficiencies have to exist as a base condition, it would simply be an assumption that can be disproven.99
The proposed Framework addresses the analysis of whether or not a merger carries anticompetitive effects or not. Given that the Commission views the HHI as an indicator rather than a threshold in itself this proposal would not place more weight on statistical analysis in concentration assessment. The HHI does provide insight into the concentration levels before and after the merger, which is a valuable assessment for post-merger review. In addition, the presumption is rebuttable, placing the burden of proof with the parties and not the Commission, which would require the parties to do a thorough assessment for themselves and their effect ante and post-merger. Nevertheless, the HHI is not particularly indicative of Killer Acquisitions.100 In Cisco Systems v Commission the General Court agreed with the
Commission’s prior assessment in Microsoft / Skype that a high HHI and a large amount of market shares would not in themselves indicate a significant impediment of competition. The Commission argued that the consumer communications sector, which was the relevant market defined in the case is a fast-growing sector characterised by short innovation cycles.101 Therefore, market
shares are not necessarily indicative of market power due to the dynamic environment and do not directly indicate an impediment of competition. The
98 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) P 34 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
99 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups, Killer
Acquisitions and Merger Control – Background Note’ (OECD 2020) P 34-36 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
100 Whish and Bailey (n 29) 891. 101 ibid 69.
Commission’s stance falls in line with Wish and Bailey, making the HHI’s inability to account for a dynamic environment its main shortcoming.
An acquisitions or merger with a nascent firm, which may or may not turn into a Killer Acquisition might not spark a significant change in the HHI. It could then be argued that lowering the threshold for the percentage might create a better chance at filtering out Killer Acquisitions, however it would also create a flood of incoming cases for the Commission.
All things considered; this Thesis does not advise to introduce a rebuttable presumption of anticompetitive effects.
4.2.2 OECD Framework suggestion
In the OECD background note of May 2020, the present parties discussed how nascent acquisitions should best be investigated and a framework was developed. The framework suggestion is based on changing the way evidence for Theories of competitive harm is viewed and considered.
They began with examining the relevant counterfactuals. The relevant counterfactuals are assessed on the basis of conditions such as the likelihood of a disruptive entry by a third party and questions such as whether the nascent firms would be likely to remain independent and how strong of a competitive constraint it would pose were it not to be acquired or killed.102 As previously stated, Killer
Acquisitions are a possible outcome of nascent acquisitions, therefore the frameworks suggestion aims to identify nascent acquisitions as a whole first and foremost. While the framework did suggest for the assessment to remain roughly the same as with more mature mergers, it foresaw changes to better identify anti-competitive behaviour in the acquisition of nascent firms, beginning with the time frame that would be taken into account in the assessment. The OECD suggested to extend the period of time from which conclusions for the counterfactuals can be
102 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups,
Killer Acquisitions and Merger Control – Background Note’ (OECD 2020) P 16 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
drawn to three years, as opposed to the current two years.103 As was also suggested
in the Lear report for the CMA, two years is a relatively short period of time for the assessment, given that some of the most controversial mergers’ competitive effects could only be observed many years after they had partaken. The effect of the acquisition of WhatsApp could only be seen six years later, in the case of Waze it was seven years and in the case of YouTube it took 14 years.104
Moreover, there are uncertainties to be taken into account in the counterfactuals, such as whether the product will prove to be popular, or if it will benefit from network access. Though it has been argued that such variables are speculative and hopeless, the background note highlights that they should nevertheless be taken into account as relevant components.105 Ideally a rational-agent approach should
be used, which means to identify the impact the merger would have in different countries, and multiplying these by their best estimate of the probability attached to them. Adjusting the perspective for counterfactual assessment is meant to allow agencies to recognise that Maverick firms can have just as much or an even stronger competitive impact as undertakings of greater dimension. In the example of Facebooks acquisition of Instagram, the platforms growth alone might not be enough proof to show that the merger was anticompetitive, it does however raise concerns about the counterfactual assessment of the case.106 Furthermore, the
strength of the competitive restrains alone would not be sufficient evidence to conclude the impact of the merger, but rather it would have to be viewed in combination with the existing market power of the incumbent, the possibility of third party entry and the substitutability of the products, which is in line with the current existing method of assessment.107
To further identify a potential competitor, it is suggested that the rationale of the merger be examined more closely to strengthen the evidence collected to support
103 Directorate for Financial and Enterprise Affairs and Competition Committee, ‘Start-Ups,
Killer Acquisitions and Merger Control – Background Note’ (OECD 2020) P 16 <https://one.oecd.org/document/DAF/COMP(2020)5/en/pdf>.
104 ibid. 105 ibid 18. 106 ibid 19. 107 ibid 20.
the theory of harm. Are the interests of the acquiring company based on freestanding strengths of the nascent firm or is the interest rooted in what the synergy of both companies could bring forth? Agencies would need to examine how specific the expected synergies are to the parties concerned and which other competitors may be interested in acquiring the nascent firm and creating similar synergies. This would provide information on the nascent firm’s prospects as an independent business and help understand why other competitors might be interested or not interested in acquiring them.108
Lastly, for the relevant counterfactual it must be considered whether the nascent firm is likely to end up a Killer Acquisition, which could be accomplished by estimating how likely the acquiring firm is to abuse its dominant position after the fact.
Having examined the counterfactuals to be considered, the suggested framework moves on to assess the acquisition itself, placing emphasis on inspecting the merged entity’s incentive and ability to raise prices, as well as its likeliness to reduce innovation or quality. This will be done by understanding market power, which in EU law is estimated by the substitutability of the products in the current market, which the framework suggests should then be viewed in combination with the counterfactual evidence.109 “The substitutability of any reduction in
competitive constraints should be measured in relation to the existing degree of competition in those markets”.110 As for how the evidence for the assessment
should be gathered, the OECD suggests this should be done with the established methods used to analyse markets in approximate equilibriums.111
As opposed to the acquisition of a nascent firm, a Killer Acquisitions entails not only moving the competitor but also the product from the market. Therefore, in addition to the aforementioned method of assessment, it should in this scenario also be taken into account what the efficiency gain would be from de-duplicating a product and if the products are or would become close competitors if the merger did not happen. This is especially relevant in the assessment if the two products
108 ibid 22. 109 ibid 23. 110 ibid 24. 111 ibid.
were in close competition and there is significant product loyalty in the given market, since an acquisition would then be less likely to lead to a Killer Acquisition but rather an expansion of portfolio.112 It would have been non-beneficial for
Facebook to kill Instagram or WhatsApp for precisely this reason. The background note further states that it is incredibly difficult to estimate whether an acquisition will be killed or not, but that the bar for consumer harm in the suggested framework for nascent acquisitions can be applied to both situations. Killing a product is of course more harmful to the consumer than a possible loss of competition, which is why the intent and the incentive of the action should be closely examined. In order to examine intent, agencies could use internal documents and check whether the investment plans of the acquiring party contain sunk costs, expected when pursuing the development of a product or if there are documents laying out a plan to kill the acquisitions outright. Moreover, agencies could quantify the savings from reducing the duplication of a product and the diversion ratios should there be a product closure as well as applying a critical loss framework.113
The OECD Framework contains multiple suggestions targeting the assessment of a concentration. Given the possibility of large firms systematically acquiring nascent firms as has been repeatedly mentioned, extending the period of time for counterfactual assessment could greatly benefit the identification of Killer Acquisitions. If a possible merger is notified the substantive test could be enhanced by drawing conclusions from a wider time frame, which also awards the Commission the benefit of examining past behaviour of the company and whether it tends to ‘kill’ or integrate the start-ups it buys into its ecosystem. Moreover, the suggestions are to examine the ‘intent’ of the merger, why this particular company would be interested in acquiring the start-up in question. This too could be observed from inspecting past behaviour of the incumbent and also the position of the incumbent and the nascent companies in the market. If the incumbent has acquired and killed hundreds of start-ups in the past, the chances of this event repeating are quite likely. However, this would very much have to be viewed in combination with other factors, otherwise it would almost create a presumption of guilt based on past behaviour. The Framework also suggests a ‘rational-agent
112 ibid 27. 113 ibid 28.
approach’, by which the impact of the merger in question could be examined in multiple Member States. This would allow the assessment to model the conditions of reality quite closely, as digital conglomerates and even start-ups in the digital economy often span multiple Member States and operate on an international scale. It would reflect the international nature of social platforms or other digital companies of a significant magnitude, as for example Google. It could be very beneficial to place more emphasis on the assessment of the relevant counterfactuals.
Moreover, it is suggested that Market power (assessed by the SSNIP test) should be viewed together with the counterfactual evidence, viewing the substitutability of the product in combination with existing competition in the market. The degree of substitutability of product loyalty to the nascent firms’ product could be viewed as an indication of how likely it is for the acquisitions to be killed or integrated. Here the Framework gives the example of WhatsApp and Facebook. WhatsApp’s users are loyal to the platform and therefore the degree of substitutability would have been rather low, making it unprofitable for Facebook to kill WhatsApp, making it a useful component to consider in the analysis of a possible Killer Acquisition. Extending the time period is also in line with Germany’s most recent change in merger control assessment, which could indicate a general shift in approach and attitude towards cumulative acquisitions and their implications. The existence of anticompetitive foreclosure strategies is moving more into focus, placing more emphasis on determining the long-term growth of dominant positions. I would suggest this to be a very useful addition to the substantive assessment, as it provides a more complete picture. However, it is disputable whether extending the time frame to three years is sufficient. Often times the anticompetitive effects can only be observed six or more years later as with Facebook/WhatsApp, rendering three years a rather short period of time. From the examples given, it can be inferred that 7 years or more would be a good period of time.
4.2.3 Expected harm test
Furman has supported a change in assessment for the merger test, shifting it from a balance of probabilities to a balance of harms and an expected value test. This
