CLIP of the month: New frontiers for assessing digital mergers. Boldly going where competition authorities have not (quite!) gone before


This month’s CLIP is the Organisation for Economic Co-operation and Development (OECD) Secretariat’s background note ‘Theories of Harm for digital Mergers’ (OECD Note). The OECD Note was prepared for the OECD Competition Committee’s upcoming June roundtable.

The OECD Note acknowledges the challenges involved when considering digital mergers, summarises how existing theories of harm have been applied by authorities to date, as well as offering some proposals for how the substantive assessment of digital mergers might be improved.

Background to under-enforcement of digital mergers

Over the last two decades there have been a high number of mergers involving some of the largest digital platforms with comparatively little intervention by competition authorities. Given the perceived growth in such platforms’ market power during this time the calls for greater regulatory scrutiny in this sector have grown significantly. This has also prompted legislative change, with the UK Digital Markets, Competition and Consumer Bill (see our guide here) just the most recent development.

Whilst the trend of perceived under-enforcement was recently bucked by the CMA’s opposition to the proposed Microsoft/Activision acquisition, as well as the recent Meta/Giphy prohibition, the legal test competition authorities need to satisfy in order to prohibit an acquisition has proven particularly challenging when it comes to digital mergers. The OECD Note explores one of the potential issues behind this, questioning whether existing theories of harm are well-suited to comprehensively capture the potential damage to competition, or whether adaptations and new theories are required to safeguard competition in these markets.

The nature of digital markets

The OECD Note first addresses the complexities around the formation of digital markets. These include their multi-sided nature, business models which are not wholly reliant on price, and the ability of network effects to entrench a platform’s market power (and the barriers to entry this then creates). Such platforms offer product ecosystems which can lock-in consumers. Companies consequently base strategic decisions around a combination of markets rather than a single product market, making it difficult to identify direct competitors. The effect of a digital merger can similarly be felt across a range of related markets.

What implications do these factors have for the competitive assessment of a digital merger? The OECD Note suggests that the zero-price nature of digital markets may necessitate a broader use of quality-focussed theories of harm to capture non-price parameters of competition (data security, ease of switching, innovation etc). Indeed, in digital markets the greatest harms can be non-price related, e.g. the detrimental impact on innovation. The OECD Note also considers whether the timeframe currently used to assess digital mergers should be extended to account for the fast-paced and dynamic nature of such markets.

Existing theories of harm for digital mergers

Horizontal mergers

The OECD Notes looks at the two main theories that have been applied to horizontal mergers. First is an assessment of the loss of actual competition, i.e. a situation involving merging firms with overlapping products where the merged entity will remove the risk of consumers switching products that acted as a competitive restraint. The European Commission incorporated this theory in its review of the Microsoft/Skype merger given the direct overlap in the provision of consumer communication services.

Second is an assessment of the loss of potential competition. This requires the authority to hypothesise whether a smaller or newly formed merging firm, absent the merger would have gone on to develop a rival service or product in a market in which it is not yet active or fully established. The UK Office of Fair Trading took this approach in its 2012 assessment of Facebook’s acquisition of Instagram, given the potential future overlap in supply of social networking services. It is obviously difficult to make predictions about how rapidly developing markets will continue to evolve and this is further complicated by the fact they are often multi-sided. Even more than 10 years later there remains little case law in this area to draw upon given such acquisitions (particularly those referred to as ‘killer’ acquisitions) rarely meet the turnover thresholds to trigger notification to an authority. This factor has resulted in recent changes to merger thresholds to include a deal value aspect in jurisdictions including Germany and Austria. Such a threshold is also planned in the UK for mergers by tech platforms designated as having strategic market status.

Non-horizontal mergers

The OECD Note concludes that whilst non-horizontal mergers have traditionally been considered less harmful due to their ability to deliver pro-competitive efficiencies, in digital markets foreclosure theories prevail. This is because it is common for players in digital markets to rely on access to rivals’ technology in some form, e.g. to an input such as an operating system. This reliance exists whether the parties are at different levels of the same supply chain or operating in separate but related markets.

The first theory identified is foreclosure through access degradation. Compromising either access to key inputs or the technical support necessary to ensure interoperability can result in input foreclosure, as considered in 2020 by the Commission in the Google/Fitbit acquisition.

The second theory concerns leveraging. Where merging firms operate in separate markets, the merger could enable the merged entity to make use of its dominant position in one market to inhibit or foreclose rivals in another market. This could be achieved through tying whereby a platform design forces the integration of a service with another product or through mandatory pre-installation (a theory explored in 2016 by the Commission in Microsoft’s acquisition of LinkedIn).


The OECD Note points to the prevalence of data in both horizontal and non-horizontal theories of harm in digital mergers. For example the Commission considered a theory of vertical foreclosure in the Microsoft/LinkedIn case on the basis that Microsoft would have been able to restrict rival software providers’ access to LinkedIn’s dataset in the downstream market. The OECD Note here suggests that authorities should move beyond focussing on the value derived from the exclusivity of a data source to consider the overall advantage to be gained from acquiring access to Big Data (the combination of numerous, varied data sources). Access to such Big Data could be of particular importance for digital platforms, enabling the data acquirer to strengthen its position across related markets in an ecosystem.

Developments and new theories of harm

Whilst traditional theories of harm, largely concerning foreclosure, have been considered in digital mergers to date, the OECD Note concludes that these do not necessarily capture the dynamics of multi-sided markets, or the wider effects on digital ecosystems. Here there is a nod to the CMA’s concern about cloud gaming in its prohibition of the Microsoft/Activision merger (specifically Microsoft’s ability to bolster its own ecosystem and disrupt an emerging market) as a step towards appropriate consideration being given to the potential impact on an ecosystem.

It is suggested that authorities could further adapt existing theories of harm by looking beyond the immediate product market to better account for the overall impact of an acquisition on the wider ecosystem in question. Non-price parameters should also feature more prominently in the competitive assessment. These developments would better capture the complex characteristics of digital markets  within existing legal frameworks.

The OECD Note then touches on three main new theories that have been proposed in academic literature: privacy, timeframe and innovation.

Privacy: It has been suggested that harms to privacy should be considered as a quality theory of harm. Specifically there should be a consideration of a wide range of privacy-related issues beyond the amount of data collected to include the ability of consumers to control and make decisions about their data.

Timeframe: As noted above there are arguments that the current timeframe for assessing mergers (two to three years) is too short when considering the dynamic and fast-paced nature of digital markets to account for long-term harms. The OECD Note suggests an approach whereby the authority first concludes whether the merger might harm competition in the long-term. If it does the burden of proof shifts and the parties then have to demonstrate (including by commitments) that the identified risks will not materialise or will be outweighed by efficiencies.

Innovation: To date the effect on innovation has been considered in two ways. First where one or both merging parties have a pipeline product, the impact on innovation will form part of the competitive assessment when considering the consequences of the lost rivalry. Second, where merging firms have comparative R&D capacity the competitive analysis of the relevant product market can account for the future impact on both parties R&D. The OECD Note suggests that limiting analysis of innovation to the defined product markets is too limiting and a more expansive approach is required to fully take account of broader industry effects.

The OECD Note provides a useful overview of some of the complex issues surrounding digital mergers and how they have been considered to date. As noted above, significant shifts are now occurring in how these types of mergers are regulated. We will be following how these proposals are built on at the OECD roundtable, which takes place on 16 June (further details here: