The Federal Cartel Office of Germany is evaluating whether it should broaden the set of criteria that it applies to investigate and approve company acquisitions. Specifically, it could start to consider the transaction volume of a deal in order to assess the significance of a planned acquisition, according to the agency’s president Andreas Mundt (interview in German).
News about enhanced examination procedures have already made the rounds over the past weeks and, according to German startup magazine Gründerszene, caused a stir within the country’s startup scene. Not surprisingly, the prospects of even more rules are not popular among German entrepreneurs and investors, who are chronically faced with the infamous German bureaucracy and hostility towards entrepreneurship.
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I don’t feel in the position to judge whether the proposed change would lead to different outcomes for the approval of acquisitions, especially when it comes to international deals. In the interview, the Cartel Office’s president mentions Facebook’s acquisition of WhatsApp as one example for a deal which has major impact but which “almost would not have been investigated by the authorities because of how little revenue WhatsApp generates.”
What is important here though is the acknowledgement of the challenges the competition authorities have to tackle in regards to the many billion Dollar acquisitions in tech, as well as the fact that the monopolization of the digital economy is advancing rapidly.
Most sectors of the digital economy have a tendency to turn into “Winner takes it all markets”. Most of these winners are U.S. companies. The top 10 of the companies with the highest market capitalization are exclusively from the U.S.. Apple, Google and Microsoft make up the top 3. They together are worth more than the 30 companies in Germany’s main stock market.
Even among so called “Unicorn” companies, the highest valued companies are predominantly U.S. American (and Chinese). Being a Unicorn does not in itself allow for a conclusion about the level of market dominance. But Unicorns usually justify their valuation towards investors with the assumed potential of completely dominating a market. Uber, valued at $62.5 billion, being the prime example here.
The quest to create monopolies is also at least a part of the Silicon Valley culture, even if it is not admitted by everyone as freely as by Peter Thiel. In his book “Zero to One”, he explains why monopolies are the ultimate form of companies and why they are good for innovation.
I read the book about a year ago and remember that I did agree with some of his points. Yet, I see too many examples of markets in which lack of competition has led to bad outcomes for consumers. The airline sector and the broadband market in the U.S. being two current examples. Basic economics teach that a lack of competition is bad for consumers, and that point seems as valid as ever. At least in the long run.
The European Union and its member states have a certain track record of decisions that are harmful to the growth and strengthening of the digital economy. But when it comes to countering the monopolistic tendencies of the U.S. tech giants, Europe and its countries must act – even if stricter rules for mergers and acquisitions might end up preventing some exits of European startups to Google, Facebook, Apple etc – which by the way is unlikely since most of Europe’s tech successes are comparatively modestly valued.
It’s only natural for tech giants to try to expand and to find ways to eliminate competition through the acquisition type championed by Facebook. But that does not mean that they should be able to always do that. There is a very fine line between healthy interventions in order to maintain a competitive market and pure, ugly protectionism. Yet looking for that line is a worthy undertaking, in my opinion.
Countering monopolistic tendencies in tech https://t.co/rPjJ89huL8
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