Assessing the Long Run Competitive Effects of Digital Ecosystem Mergers

Abstract

This paper focuses on the assessment of long run anti-competitive effects on direct entry following acquisitions by digital ecosystems. The paper develops a model to combine the effects of complementarity and economies of scope, which are the two main characteristics observed in digital ecosystems. We show that these two characteristics provide a sufficient condition for a higher entry barrier of competing ecosystem, since conglomerate mergers involving ecosystem can reduce entry by reducing the potential profitability of market entry. As such, some mergers that provide short run benefits for consumer have anti-competitive long run effects that ultimately hurt consumers. Then, we study five major cases before the European Commission involving one of the ecosystems of the Big Five (Apple, Amazon, Facebook, Google and Microsoft), to demonstrate how these long run effects was assessed in practice. The paper finds that the Commission should incorporate a novel test for long run effects of mergers to capture the ecosystem effect in mergers. The paper concludes by suggesting that the assessment of long run effects could happen under a reversed burden of proof, by tying it in with the undertakings claims for efficiency justifications.