Antitrust’s Cloudy Crystal Ball

Even in the wake of Meta’s biggest mass layoff ever and a $71 billion loss this year, antitrust regulators around the world are peering into crystal balls to head off hypothetical future harms by the social-media and virtual-reality company. On the pretext of safeguarding competition, they are raising concerns about markets that don’t yet, and might never, exist to block deals that could benefit consumers and spark innovation. The main difference between these regulators and fortune-tellers is that the former can shape the futures they envision.

A recent example is the U.K.’s Competition and Markets Authority’s (CMA) blocking Meta’s purchase of Giphy, the American GIF search engine. Meta sought the company to make posting of Giphy’s images easier on Instagram and Facebook, but the British regulator pronounced that the consolidation would “substantially” reduce competition in the sector of display advertising. This is a weird position for the CMA to take, as Giphy does not currently generate any advertising revenue and its potential to ever do so is probably nonexistent. Before Meta’s attempt, Snap Inc., the parent company of the messaging app Snapchat, had abandoned its plans to purchase Giphy because its due diligence found no potential for revenue by aligning ad services in the future.

The CMA, therefore, intervened to stop the purchase of a company existing on venture capital — that no one had any idea how to monetize — because maybe, somehow, if left unpurchased, it would grow into a serious advertising rival to one of the biggest companies in the world. That’s quite a prediction. It is at least equally likely that stopping this acquisition will ultimately mean the unprofitable Giphy will go out of business, and consumers will be left with one fewer free service.

The regulatory crystal-gazing is happening stateside, too. The United States’ top business busybody, the Federal Trade Commission (FTC), last year tried to stop next-generation DNA-sequencing-platforms manufacturer Illumina from acquiring GRAIL, developer of a revolutionary multi-cancer early-detection test. Not only were these firms never competitors, the very market they would operate in did not exist. Market share cannot be measured before the creation of a market. Nonetheless, the FTC decided to intervene, seemingly basing its decision on what it saw as the noble mission of protecting purely potential and theoretical competition in the future.

The costs of blocking this vertical merger, a type long understood to bring cost-saving benefits to consumers, might have been measured in body bags. The abstract notions of innovation and progress take on extra weight when disposing of them means more lives lost to cancer. If there was ever a case for regulators to exercise humility in predicting the future of markets, surely it was this one.

If consumers can’t expect regulators to be humble in the face of life and death, what can they expect in instances such as Meta’s attempt to buy Within? Meta has invested about $100 billion in its version of virtual reality, known as the “metaverse.” Meta’s recent attempt to purchase fitness app Within, for use with the Oculus headset, is now facing opposition from antitrust and competition regulators. Once again, these are two companies that do not compete against each other and whose merger would operate in a market that has yet to take shape.

Markets tend to develop in unforeseen ways. Just 15 years ago, cell phones were, well, phones, and the market was dominated by firms like Nokia and Ericsson. Then the iPhone debuted and a whole set of markets was opened up. What would have happened if the FTC had blocked Apple’s 2005 acquisition of FingerWorks, which at the time was on the verge of going bust, and whose developments helped create the iPhone touch screen?

Very often innovation isn’t the simple act of coming up with a new idea: It is taking two existing ideas and putting them together. Mergers and acquisitions are vital elements of that part of the innovative process. For this reason alone, regulators should err on the side of allowing them.

Read the full article at National Review.