Presentation delivered during 9th Seminar on Media and the Digital Economy (21-22 March 2019, Florence). http://fsr.eui.eu/event/annual-scientific-seminar-on-media-and-the-digital-economy-9th-edition/

1. Digital Conglomerates
and EU Competition Policy
Marc Bourreau, Telecom ParisTech, CERRE
Alexandre de Streel, University of Namur, CRIDS/NADI, CERRE
9th Scientific Seminar of FSR/FCP/CMPF
Florence, 22 March 2019
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2. OUTLINE
1. Introduction
2. Motivations of digital conglomerates
3. Competitive effects of digital conglomerates
4. Recommendations for EU Competition Policy
5. Conclusion
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3. 1. The rise of digital conglomerates
• High degrees of diversification in unrelated or weakly related
markets by big-tech firms
• Diversification taking place via
• Internal growth
• Financing of start-ups
• Mergers and acquisitions
• Competition in the digital sector today heavily shaped by the
competition between large digital conglomerates
• This paper: what are the firms’ motivations and the competitive
effects of digital conglomeralism? What consequences for
antitrust methodologies and enforcement?
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4. 2. Motivations: Lessons from past conglomerate mergers
• Earlier wave of conglomerate mergers in the 1960s and 1970s
rationalized through three classical views:
• Market power view: indirect channels of market power increase
• Digital: creation of product ecosystems, which increase differentiation
• Resource view: response to excess capacity in key resources
• Digital: excess capacity in computing resources, talent, data, etc.
• Internal financial market view: internal capital markets more
efficient than external capital markets
• Digital: redeployability of innovative assets in digital conglomerates
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5. Economies of scope in product development
• Digital products involve a modular design
• Generate strong economies of scope in product
development
• Firms can use sharable modules from existing products to
create new products at low development costs
• Sharable modules: hardware, software, data
• Reduce the costs of expansion into a multi-product entity
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6. Product ecosystems
• Product ecosystems: portfolio of products that are linked in
such a way that their joint consumption generates
consumption synergies for consumers
• Strategic decision for firms  ecosystem linkage
• Increase the benefits of expansion into a multi-product
entity
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7. 3. Competitive effects: Bundling
• Bundling can be motivated by efficiency gains, but may also
have strategic motivations
• May raise entry barriers for innovating entrants
• Bundling, and more generally product ecosystems, may also
increase the differentiation of product lines, softening competition
• In platform markets, bundling + economies of scope 
envelopment
• May be mitigated, but not totally, if platform users multi-home
• But bundling in a platform context can be efficient too
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8. Key inputs
• Control over essential product components or key inputs
may confer a competitive advantage over potential rivals for
the creation of product ecosystems
• Data as an example
• If product innovation is data-driven, data may constitute an
essential component for product innovation
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9. Gatekeepers
• Expansion of product line can offer a position of gatekeeper
for access to the customer base by third parties
• Provides strong market power to the firm, e.g. for setting the
conditions of access
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10. Killer mergers
• The acquisition of promising start-ups by large digital firms
can be driven by efficiency motives
• Complementarities between start-ups (ideas…) and large firms
(skills, resources…)
• Risk that these acquisitions could also be driven by pre-
emptive motives, possibly leading to killer acquisitions
• Shutting down innovative projects to avoid cannibalization
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11. 4. Recommendations: Objectives of competition policy
• From static to dynamic efficiencies
• Change the priorities order
• Keep markets contestable and contested
• Focus on innovation capabilities
• Depend on innovation paths which, in turn, vary across industries
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12. Determination of market power
• From static to dynamic assessment
• Markets defined on the basis of existing products (output)
• More focus on potential competition and entry barriers
• Ecosystem of products and after/system markets
• Markets defined on the basis of capabilities (input)
• Competition in innovation (Horizontal and Technology Transfer agreements
Guidelines)
Innovation spaces (Dow/DuPont)
• Barriers to key innovation capabilities: data, computing power, specific data
and computer skills
• Going further than Microsoft/LinkedIn
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13. Determination of market power
When innovation is high, capabilities are more stable than
products.
The tools for assessing capabilities may not be well developed
yet, but they are developed enough to allow tentative
application. Clearly, product market analysis can be unhelpful
and misleading in dynamic contexts. Using the right concepts
imperfectly is better than a precise application of the wrong
ones.
David Teece (2009)
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14. Theories of harm
• Bundling
• Entry barriers for innovation
• Envelopment strategies
• Access to key inputs
• Revisit essential facility trade-off and conditions
• when the costs of sharing are lower and the benefits higher
• Killer mergers
• Complementary notification threshold based on transaction value
• Innovation theory of harm
• Risk of cannibalisation
• How this risk affect innovation incentives
• What business plan and firms tell us
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15. Procedures and Institutions
• Market dynamism and antitrust velocity
• Reduce time lag, which can be particularly costly when markets tip
• Increase expertise and information
• More internal and external experts
• Learning by doing and ex post analysis
• Strict deadline without adverse case selection
• Market uncertainty and antitrust legal proof
• Standard of proof: take probability but also costs of type I and II errors
• Burden of proof: more general debate on presumption in uncertain
environment
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16. 5. Conclusion
• More effective public intervention in environment which is
• More concentrated (due to economies of scale and scope
and network effects)
• Keep markets contestable and contested
• More uncertain (due to rapid technological innovation)
• Experiment
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