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In the race to determine which country’s antitrust authorities will be the most assertive in cracking down on tech platforms, the United Kingdom has earned special recognition: It is the first to break up a tech company. By forcing Facebook (Meta) to unwind its 2020 merger with GIPHY, the search engine for free GIFs, clips, and stickers, the United Kingdom’s competition watchdog—the Competition and Markets Authority (CMA)—demonstrated, yet again, its radical approach to antitrust.
This decision is unsurprising, yet regrettable. It is unsurprising for two reasons. First, the overriding focus on large online platforms by many antitrust authorities renders any merger involving the “GAFA”—namely, Google, Amazon, Facebook, and Apple—as anticompetitive, irrespective of the merits of the acquisition. The current techlash would substitute acquirers’ spending spree with a regulators’ banning spree. Indeed, current enforcement and proposed regulations in Europe and America indicate a negative bias toward any consolidation involving any GAFA. Proposed regulations and bills in Europe and the United States discriminate against acquisitions involving large platforms. The United Kingdom’s upcoming Digital Markets Unit will render these acquisitions virtually impossible given the extremely high evidentiary thresholds these companies will have to provide to overcome the regulator’s negative biases.
Second, the United Kingdom’s competition authority issued a report in July 2020 titled “Online platforms and digital advertising.” The report argued that Facebook “has a strong position in the display advertising” market without defining it. Google and Facebook are dominant players in search advertising and display advertising, respectively, and any of their acquisitions automatically appear suspicious to the U.K. regulator.
This decision is regrettable because it ignores the reality of the competitive rivalry at stake. In other words, the CMA ignores the competition it is supposed to protect. After Google acquired the GIFs platform Tenor in 2018, Facebook reacted to this competitive rivalry by acquiring GIPHY. As its founder has explained, GIPHY is a search engine for GIFs that competes with Google, not Facebook!
Consequently, Facebook’s acquisition of GIPHY is a way for the social media platform to compete with its great rival, Google. Therefore, to prohibit the merger, as the CMA has wrongly decided, will reduce competitive pressure on Google and prevent Facebook from building its capabilities to be well-placed in the future of monetizing messaging. In that respect, GIPHY could have helped Facebook monetize messaging in competition with Google’s Tenor or TikTok.
There is no reasonable argument for saying that GIPHY is a (potential) competitor to Facebook: GIPHY by itself is not about to credibly become a social media company, nor could its digital advertising ambitions have generated a strong competitive constraint in the market dominated by companies such as Google. But Facebook could—and that is precisely why it wanted to acquire GIPHY.
Is it possible for an antitrust authority to simultaneously reduce competition and innovation? Yes, the CMA illustrates it with the Facebook-GIPHY merger: It reduces competitive pressure on Google while preventing Facebook (Meta) from innovating on its social media platform and display advertising by integrating GIPHY.
Furthermore, Facebook offered the CMA a commitment that it would maintain open access to GIPHY’s content for third-party users so that potential competitors can have the time necessary to build up a rival to GIPHY without reducing consumer choice in the interim. These behavioral commitments were not convincing enough to dissuade the CMA from its preference for structural remedies: In a world of antitrust populism, only breakups seem to suffice. And let’s imagine a scenario in which Facebook doesn’t preserve open access to GIPHY’s content for third-party users such as TikTok, Twitter, and others. Then the competition between GIF platforms would lead Google’s Tenor to step in and provide such access, thereby deterring Facebook from not providing open access in the first place. But the CMA largely ignored the reality of competition between GIPHY and Tenor. The blocked merger between Facebook (Meta) and GIPHY relies instead on an erroneous assessment of the competitive rivalry: It will reduce competition and innovation, and will increase legal uncertainty.
This is the first time since the European Commission blocked General Electric and Honeywell in 2001 that a European antitrust regulator has intervened to disallow a merger between two U.S. companies. Moreover, the CMA’s decision to block the Facebook-GIPHY merger occurs after the United States and European Commission both declined to scrutinize the merger. Not only does this demonstrate the CMA’s radical stance but, most importantly, it illustrates the unfortunate consequence of the lack of global coordination on antitrust.
Today, competition authorities neither align on the least-stringent approach–in a regulatory race to the bottom–nor on the most-efficient approach–in a regulatory race to efficiency. Rather, the risk is that they will align on the most stringent approach–a regulatory race to the top (or to inefficiency). Professor Anu Bradford, who coined the expression “the Brussels effect,” wrote that “the strictest antitrust laws prevail in situations where conflict exists among different regulators.” Yesterday, it was the Brussels effect. Today, it’s the London effect. Tomorrow, it will whatever location raises the bar even higher in taking the most assertive approach to antitrust.
This antitrust race to inefficiency suggests that one of two things will happen, neither of which is good: Either Europe’s precautionary approach will de facto regulate American companies, or Washington policymakers would somehow align with the European (writ large) approach to aggressive antitrust enforcement.Either way, Europe’s approach will prevail as the Facebook-GIPHY decision illustrates.
This blocked merger more fundamentally reveals the antitrust race to inefficiency between competition regulators where only the most aggressive one has the last (and most influential) word, irrespective of the merits. Given the lack of coordination between antitrust authorities and the overwhelming surge of anti-tech populism underway, global antitrust is on a collision course with global innovation, and consumers will be the losers.