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“Embrace, extend and extinguish” – Amor Fati and the Paradox of Recurrence


James Saligari

By

May 12th, 2020


Join James as he explores killer acquisition in the ever-growing business world.


John D. Rockefeller’s Standard Oil dominated the 19th century’s economy through the acquisition and horizontal integration of its competitors and supply chain. And anyone who refused to be bought, was destroyed with predatory pricing strategies. Digital conglomerates are under increasing suspicion of similar anti-competitive behaviours. Just as supermarket goliaths hide behind an array of diverse brands and product offerings, Facebook’s “mission to change the way the world communicates” is delivered under an illusion of choice offered by its holdings: Instagram, WhatsApp, and many others. The complementary services these supposed ‘competitors’ offer have been purposefully acquired to marginalize rivals and increase barriers to entry. Cultural barriers exist, too, with budding entrepreneurs’ masquerading as visionaries in order to achieve their ultimate goal – acquisition. And all the while, tech giants argue that we have a choice[i]. The consequences of oligopolistic markets are well known – price gouging, and lower welfare.


[i]

Where Rockefeller’s empire lowered costs and undercut competitors, however, digital conglomerates have sought to ‘kill’ competitors through preemptive and targeted acquisitions. In 2008, Facebook purchased FriendFeed for $47.5m (USD), a company that has since ceased operates indefinitely. As of right now, Facebook has acquired at least 56 companies. Such actions are called ‘killer acquisitions,’ where a dominant firm acquires a start-up or potential competitor in order to eliminate future competition. Cunningham, Ederer, and Ma [ii] highlight firms’ “incentives to acquire innovative targets [and] prevent the profit cannibalization of existing products” that overlap with the firm’s own offerings. These incentives further increase under “weak existing competition.” In other words, monopolists want to remain monopolists and will act in quasi-legal ways to do so. Cunningham’s conservative estimates indicated that at least 6.4% of all pharmaceutical acquisitions (in their sample) were killer acquisitions, and, more importantly, priced just below the threshold for undue regulatory scrutiny. Whilst their paper mainly analyzed pharmaceutical companies, there is a clear crossover between their general theoretical model and the behaviour of tech giants like Facebook, Microsoft, and Google. And in an economy where “innovation drives economic growth,” antiquated legislation favours “exploiting firms” that corrode social advancement and welfare. One of the main excuses companies provide for ‘killer acquisitions’ is that they want to acquire a firm’s ‘human capital.’ Cunningham’s paper strongly dismisses this excuse as pretense, asserting that only 22% of “human capital acquisitions.. eventually [work] for the acquiring firm.” This charade sounds suspiciously similar to Facebook’s own interest “in the engineers working for [FriendFeed],” shortly before FriendFeed’s shutdown.

Whilst the ‘social platforms,’ self-driving cars, and unicorns of Silicon Valley are a far cry from the oil refineries of 1870, their underlying presence is a rehash of the same old story. The industry may change, whether it be oil[iv], tobacco[v], telecommunications, or software[vi], but the result is always the same.

[i] https://www.economist.com/leaders/2018/01/18/how-to-tame-the-tech-titans

[ii] https://en.wikipedia.org/wiki/Hobson%27s_choice

[iii] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3241707

[iv] https://en.wikipedia.org/wiki/Standard_Oil

[v] https://en.wikipedia.org/wiki/China_Tobacco

[vi] https://en.wikipedia.org/wiki/AT%26T_Corporation

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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