By: Asheesh Agarwal, Advisor, American Edge Project
In the musical Hamilton, a forlorn King George III bemoans the loss of his “sweet, submissive subjects” in the colonies. In full royal regalia, he grumbles that “we made an arrangement when you went away — you were mine to subdue.”
It appears that Britain’s Competition and Markets Authority is now channeling the Mad King. In 2020, Facebook purchased GIPHY, a much smaller company that produces GIFs, those ubiquitous static and animated images found online. Facebook believed that it could upgrade and expand GIPHY’s product offerings, to the benefit of both companies and their customers. Recently, however, Britain announced that it would require Facebook to unwind this acquisition, even though Facebook and GIPHY are American companies and GIPHY has essentially no nexus to the United Kingdom.
Britain’s move follows on the heels of the European Commission’s efforts to block another all-American merger, between Illumina and Grail, two companies that are working to develop blood tests that would detect early stage cancers and perhaps save tens of thousands of lives. Both transactions involve American companies, employees, and shareholders, with an established American legal framework to address any competitive concerns.
These are colossal overreaches that appear designed to protect domestic industries abroad, with little regard for established American concepts such as consumer welfare. Now, as at our country’s founding, Congress and the administration must defend American economic and political interests from overseas incursions. In particular, Congress and the Biden Administration should affirm their commitment to international comity and to a competition policy that centers on the consumer welfare standard. And our friends in Europe should consider whether they want to undermine the competitiveness of American companies in ways that almost certainly will benefit companies housed outside the liberal democracies of the West, starting with China and Russia.
By way of background, countries typically review a merger only if the proposal materially impacts its domestic market and customers. This prudent practice respects international norms and increases the law’s predictability. It makes no sense for, say, Angola to review a merger involving Australian companies and markets, and vice versa. By these measures, Europe and Britain should have had no interest in either merger. Grail has no ongoing business activities in Europe, while GIPHY earns no revenue in the UK, charges British consumers nothing for its products and had no plans to charge British consumers for use of its products. GIPHY also has no physical presence or employees in the UK.
Moreover, in blocking the merger, Britain’s analysis rested on speculative theories of possible competitive harm, rather than actual evidence of harm to consumers in the form of higher prices, lower quality, or reduced innovation. For instance, Britain posited that GIPHY might someday compete with Facebook in the market for digital advertising, even though GIPHY is not today a viable competitor and is reportedly not profitable. Britain also hypothesized that Facebook might one day limit competitors’ access to GIPHY’s products, even though Facebook promised to preserve their access and has every incentive to expand GIPHY’s sales. Britain’s theories are belied by a century of antitrust experience in the United States, which has taught that these types of vertical mergers generally benefit consumers, improve access to capital for smaller companies, and enhance competition across markets.
Accordingly, Britain’s actions represent a direct assault on American economic and political interests – or, as King George III might say, a “fully armed battalion to remind you of my love.” In blocking the merger, Britain is raising barriers to financing American start-ups in a manner that could cost some American employees their jobs. The UK is attempting to protect potential domestic competitors at the expense of American rivals while simultaneously, and likely inadvertently, advantaging Chinese companies that are looking to expand their global footprints.
Perhaps worst of all, Britain and Europe are exporting their concepts of “abuse of dominance” into the American antitrust law. For four decades, American antitrust law has centered on the welfare of consumers, not individual competitors. Britain and Europe take a different tact. They focus heavily on artificial and secondary measures of competition, such as market concentration and the number of competitors in a market, rather than on the question of whether those competitors are providing consumers with high quality goods and services at low prices. If allowed to stand, these recent actions would subject American companies to European competition standards here at home, even if those standards are more burdensome and even inconsistent with American law.
Indeed, these European concepts could cripple American innovation over the long term. Europe now lags well behind the United States, Japan, and even China in innovation. Europe invests a lower percentage of its GDP in research and development than China and not one of the world’s fifteen largest digital firms is European. While the causes are many, competition policy explains part of the discrepancy. The United States has established a predictable legal and regulatory antitrust framework that encourages and rewards investment in innovative start-ups such as GIPHY and Grail. Europe, on the other hand, punishes such investments by holding larger companies to an amorphous “abuse of dominance” standard that often leaves smaller companies without the financing they need to grow and prosper. With their recent actions, London and Brussels have signaled that they will impose their statist competition policies on American companies.
In addition to harming American interests, these moves also run counter to public opinion on both sides of the Atlantic. According to a recent poll, British, American, and continental European voters share a common set of values and interests, including concerns about China. Across Europe, more than 70% of voters believe that China’s growing influence is a threat to the economies of the United States and Europe. On both sides of the Atlantic, four out of five voters are alarmed by the prospect of “foreign countries gaining a technological advantage over the U.S. and Europe.” In the face of these threats, U.S. and European voters want greater cooperation to balance China’s influence: 80% of voters agree that “the EU and the U.S. should work together to preserve the economy, national security, and other benefits of today’s internet and related technology.” Rather than undermine American economic interests in the name of speculative competitive harm, Britain and the United States should support each other’s innovative private companies.
Despite their recent ill-advised forays into American economic regulation, Britain and continental Europe have far more in common with the United States than our strategic competitors in China and Russia. Collectively, we share largely the same history, culture, values, worldview, representative system of government, and economic philosophy, one which abhors protectionism and embraces free markets. Our governments should adopt common policies that support our private sector and that allow innovation and investment to flourish.