This presentation by Eliana Garcés - Facebook, was prepared for a roundtable discussion on Conglomerate effects of mergers for the 133rd meeting of the OECD Competition Committee on 10 June 2020. More papers, presentations and contributions from delegations on the topic can be found out at http://www.oecd.org/daf/competition/conglomerate-effects-of-mergers.htm

1. Conglomerate effect of mergers
A Call for Caution
Eliana Garces
Director, Economic Policy
Facebook 10.06.2020

2. 2
Agenda
1) Tying and bundling cases are still hard work
2) New frameworks offer no general results
a) Bargaining theories
b) Innovation
3) Digital Ecosystems

3. 3
Tying and Bundling theories of harm
A merger allows the new entity to create an ‘attractive bundle’ for the
customer compared to the stand alone offers
- Harms customers who do not want the bundles due to higher individual prices
- Potential foreclosure of standalone suppliers
- Profitable due to the internalization of higher sales of complementary product
(GE/Honeywell, Essilor/Luxottica)
Chicago Critique applies if competitive markets and strong
complementarity
Whinston (1990) and others build plausible theories of harm in other
cases

4. 4
Tying and Bundling theories of harm (2)
Tying and bundling theories of harm require empirical validation
of necessary conditions. These imply the assessment of
- Market Power in tying market
- Demand complementarities
- Customer heterogeneity in the demand for the different products
- Barriers to entry in tied market (economies of scale, fixed costs)
And a balance of compensating efficiencies
Case by case analysis and no presumptions

5. 5
New Frameworks: Bargaining theories
Applicable to mergers in markets with large powerful
counterparties & negotiated prices. Harm is ability to increase
price, not foreclosure
In a nutshell
- Bargaining determines how the ‘gains of trade’ (value to customer – cost) is
split among counterparties
- Will depend on bargaining power and ‘cost of no deal’
- Merger can increase the ‘cost of no deal’ for the customer and shift rent to
the conglomerate (mergers in content, merger in retailers’ supplies)
- Merger can decrease the ‘cost of no deal’ for the conglomerate
(recoupment)

6. 6
New Frameworks: Bargaining theories (2)
•Bargaining theories of harm require empirical validation of
necessary conditions. These imply the assessment of
- Conglomerate market power in the different products
- Buyer’s demand complementarities
- Buyer’s market power
- Preferences of final consumers
And a balance of compensating efficiencies
Case by case analysis and no presumptions

7. 7
New Frameworks: Innovation
Looks that impact of the merger on incentives to innovate given
the market conditions resulting from the merger
In a nutshell
- The merged entity increases innovation effort due to internalization of
benefits in complementary market but
- Lower probability of rival success: chances of success decrease (Etro
2018); rivals need to successfully innovate on several products to offer
competitive bundles (Choi and Stefanidis 2006)

8. 8
New Frameworks: Innovation (2)
Innovation related theories of harm require the empirical validation
of necessary conditions. These imply the assessment of
- Innovation complementarities
- Demand externalities across products
- Market power in different products
- Nature of innovation (incremental vs disruptive)
And a balance of compensating efficiencies
Case by case analysis and no presumptions

9. 9
Digital Ecosystems
‘Tying and bundling’ and ‘Bargaining power’ type theories of harm
- Foreclosure due to preferential positioning within ecosystem
- More products increase the cost of user ‘no engagement’ in ecosystem
Also require empirical validation of necessary conditions (at least!) in the
areas of
-Platform market power in all products / User choices in all products
-Complementarity of the products for users
-User heterogeneity
And a balance of compensating efficiencies
Case by case analysis and no presumptions

10. 10
Digital Ecosystems (2)
‘Innovation type’ theories of harm
-Foreclosure due to higher costs of required innovation and low likelihood of successful
entry
Also require empirical validation of necessary conditions (at least!) in the
areas of
- Nature of innovation (are we talking about gradual innovations?)
- Innovation production complementarities
- Demand side complementarities
And a balance of compensating efficiencies
Case by case analysis and no presumptions

11. 11
Ecosystems &
Conglomerates
Is this a conglomerate?
- Social feed
- Messaging
- Advertisement
- Shopping
- Stories/Video/Content
…
None of these products can exist ‘as
is’ outside of this ecosystem