Handle with care: Big Tech mergers are not as evil as our watchdogs might believe
Watchdogs and oversight bodies around the world, including the US Federal Trade Commission, have tried to break up Big Tech, but the UK may be the first to succeed — at the cost of entrepreneurship and innovation.
Last week, the Competition and Markets Authority ordered Facebook’s parent company, Meta, to sell Giphy over antitrust concerns. According to the CMA’s press release, the estimated $400m acquisition could hurt competition if Meta restricts rivals from accessing Giphy’s GIF library.
The CMA’s aggressive approach to regulating markets, which exacts punishment based on theoretical rather than actual harm, is proving effective at warding off mergers and acquisitions deals and investment in the UK.
Facebook purchased Giphy in September 2020, and the CMA began its investigation into the deal in January. In August, the department released its provisional findings, concluding that the acquisition could substantially lessen competition in social media and display advertising. Regulators reiterated these concerns in their final report, which ultimately led to their decision to force a Meta-Giphy divestiture. They boldly argued that the only way to resolve the threat to competition was to sell Giphy, in its entirety, to an “approved buyer”.
It’s a stretch to consider Giphy as a competitor to Facebook. But even if they were, then it is similarly implausible to believe that a structural remedy is the only way to mitigate the potential lessening of competition. There were a litany of other solutions available. For instance, the CMA could have required Meta to keep Giphy’s library open to other platforms until competitors could develop their own. The CMA rejected these alternatives outright, instead choosing the nuclear option that allows regulators to manipulate the free market by erasing a completed merger and mandating a new deal with a CMA approved buyer.
This sentiment echoes those of the Federal Trade Commission in the US, which, back in August, alleged that Facebook illegally acquired smaller businesses and proposed structural separations as a favorable remedy. Both arguments rest upon the implicit assumption that Big Tech mergers are inherently nefarious, meant to squash competitors and distort fair competition. But without evidence, these claims are purely speculative, making a forced divestment an even more significant and egregious form of overreach.
These actions will hurt the UK tech industry, which has grown rapidly over the past few years. Not every deal with a Big Tech company is a “killer acquisition,” but treating them as such will take away a critical exit strategy for growing companies and scare off businesses from investing in the UK.
The fallout has already begun. According to The Times, the CMA’s actions are discouraging Amazon from any UK deals. And just last year, the CMA’s regulatory challenges caused US airline technology provider Sabre to scrap its $360m merger with Farelogix. If the department wants to adopt a forward-looking view, then it ought to consider this loss of investment, entrepreneurship, and innovation that occurs as a direct result of its decisions.
The CMA is erring on multiple fronts: basing its decisions on speculative accusations of harm, ignoring equally valuable considerations, and choosing the most disruptive solution. This recklessness may earn the CMA praise among international regulators, but it makes the UK an inhospitable environment for business.