Friday, December 30, 2016
Jeffrey A. Eisenach, American Enterprise Institute; NERA Economic Consulting examines US Merger Enforcement in the Information Technology Sector.
ABSTRACT: U.S. merger policy seeks to prevent transactions that would result in a substantial lessening of competition in a relevant product market. Competition is harmed when a transaction results in a significant increase in market power, defined as the ability of a firm, or group of firms, to set and maintain prices above (or reduce quality below) the competitive level, thereby harming consumer welfare; or, in an increase in the incentive and ability of a dominant firm to engage in anticompetitive activities, such as raising rivals’ costs. Under prevailing jurisprudence, transactions which significantly increase concentration in a relevant market above certain levels are presumed to increase market power and substantially lessen competition. However, merging parties seeking to win approval of transactions that significantly increase concentration may rebut the presumption of illegality by demonstrating through other evidence that the transaction will not actually harm competition, or that any harms are offset by increases in transaction-specific efficiencies.
The application of these concepts to transactions in information technology (IT) markets is complicated by the fact that such markets have distinct economic characteristics. Specifically, IT markets typically exhibit dynamism, modularity, and demand- and supply-side economies of scale and scope (Eisenach 2012, Eisenach and Gotts 2015a). Each of these characteristics introduces challenges and complexities into the assessment of the competitive effects of mergers.