UK Antitrust Bureaucrats Could Kill American Startups
In case you thought the “techlash” threatening Big Tech companies with greater regulation was largely driven by former President Trump’s bluster, think again. An antitrust case in the United Kingdom could force an American company to divest a valuable acquisition, and create a chilling effect that could hinder American innovation and the launching of startups.
The company in question is Facebook, which is hardly anyone’s cup of tea these days. But, as with free speech, it is when the rights of those we dislike are under attack that those rights most need defending. The right in question is its right to buy out a smaller company, in this case Giphy, a search engine and repository of GIF files — those little animated and captioned photographs that are ubiquitous on social media.
The UK’s Competition and Markets Authority (CMA), the British equivalent of the Federal Trade Commission (FTC), says that Facebook’s acquisition of Giphy last year may have hurt competition (its current findings are preliminary) and that it may require Facebook to divest Giphy.
A major rationale for the CMA’s finding is that Giphy was considering going into the digital advertising business. So, Facebook buying Giphy cut out a potential avenue of competition against Facebook’s strong advertising business.
That is pure speculation. Giphy had not moved into the advertising business and had no presence in that market when the acquisition took place. If the CMA requires Facebook to unwind its acquisition of Giphy, it will be doing so based on hypothetical reasoning. As recent research suggests, there is little evidence that “killer acquisitions” — whereby one company buys another supposedly to kill off burgeoning competition — cause any economic harm.
Moreover, the fact that a British regulator is trying to impose its rules on an American company buying another American company suggests that it is trying to set itself up as a global standard setter on acquisitions policy. If it is successful, that could raise the bar for American acquisitions to an unacceptably high level, with dire implications for American innovation.
As I have argued previously, the possibility of a startup being acquired by a bigger company is an important motivator in business innovation, especially in the technology sector. One major reason is that American financial regulation makes it difficult for firms to grow. Yet whatever the reason, being acquired is a vital component of many startups’ business plans, enabling them to attract venture capital or other seed funding.
If UK regulators impose their view of hypothetical competition as grounds for stopping and even unwinding acquisitions, the resulting chilling effect on innovation and startups will be a near certainty. Some entrepreneurs will be deterred from founding companies to turn their ideas into reality. Ironically, some of those same would-be entrepreneurs will probably take their ideas to the big companies instead.
Sadly, our current Federal Trade Commission seems similarly hostile to innovation. At least the FTC’s Commissioners are answerable, via their Presidential appointments and Congressional oversight, to elected officials and by extension to the American people. When the FTC grew too big for its boots in the 1970s, Congress brought it to heel. Future Presidents who are friendlier to innovation and consumer welfare can appoint Commissioners to change the agency’s direction. But, of course, they have no power over the UK’s CMA.
Read the full article at Real Clear Policy.