Digital platform mergers and innovation: Evidence from the cloud computing market (with Doan T.) Available at CCP 23-05 (Under R&R at Journal of Industry, Competition and Trade).
This paper empirically analyses mergers and innovation in the cloud computing market, one of the fastest-growing digital markets. We first examine mergers by big tech firms and venture capital funding for young start-ups in this market. We find that leading firms in the market tend to acquire young start-ups, whereas non-leading firms tend to purchase more established firms to gain market share. We then conduct an ex-post evaluation of how mergers in this market affect the innovation output - measured by patents. The results show a positive impact of mergers on innovation. In this market, and our measure of innovation, acquisitions do not necessarily harm innovation. The breakdown of this empirical analysis reveals stronger positive effects when the firm holds a leadership position in the market, operates as a multisided platform, or when the target is a publicly traded company. The value of the acquisition does not exert any additional impact.
The effects of taxation on differentiated products markets (with Anna Rita Bennato) Available at CCP 23-06.
In this study, we analyse the impact of differentiated and homogeneous ad valorem tax rates on two product qualities within imperfectly competitive markets. Our focus is on the tax's application to product quality and its implications for prices and welfare. We find that with a symmetric tax rate increase, net prices diverge when the tax is quality-differentiated and converge when it is uniform across qualities. Competition mitigates these effects, promoting convergence under differentiation and divergence under homogeneity. A differentiated tax system generates higher tax revenues and producer rents, but reduces consumer surplus, highlighting the trade-offs inherent in tax policy.
Unintended distributional impacts: Concentration, and competition policy (with Steve W. Davies and Junjun Zhang) Original short paper CCP 22-01.
This paper contributes to the empirical landscape regarding the distributional impact of competition and competition policy. Employing a unique blend of data from the national survey of household expenditure and the UK business structure database, it uncovers three noteworthy findings. Firstly, it reveals that individuals with lower income levels tend to rely more heavily on product purchases and services from markets characterised by higher concentration, compared to their wealthier counterparts. Secondly, it identifies a significant negative correlation across products and services, linking the income elasticity of demand to the concentration of the industries that supply them. Thirdly, the paper sheds light on the impact of regulation and competition enforcement by competition agencies. Specifically, it demonstrates that regulated sectors or markets subject to competition enforcement measures have experienced reduced concentration, particularly benefiting consumers with lower incomes.
Cleaning up? The effect of quality contribution in Amazon’s attempted iRobot acquisition (with Junjun Zhang)
Amazon’s proposed acquisition of iRobot is analysed using an intuitive model of platform-driven quality allocation, demonstrating that platform ownership can amplify quality asymmetries - especially after acquiring a high-quality seller. Structural estimates based on US robotic vacuum data reveal that even modest, algorithmically driven boosts to iRobot’s ratings post-merger can substantially increase both firm and platform profits, as well as shift market shares. These findings underscore the competitive importance of algorithmic quality contributions and indicate that merger policy should also account these non-price effects in digital markets.
Non-price Effects of M&As in the App Market (with Michael Kummer and Junjun Zhang)
Using data from 8 million apps and 1.8 million developers on the USA Google Play Store (2015–2019), this study investigates the non-price effects of 1,387 mergers and acquisitions (M&As) involving US app developers from 2016 to 2017, addressing the growing interest in digital markets. The analysis shows that M&As reduce new app launches and purchases while also limiting app removals and sales, leading to a net decline in app variety. However, M&As increase app updates, indicating a strategic focus on enhancing the quality of existing products. Acquisitions drive a sharper decline in new launches compared to mergers, which show minimal impact. Horizontal M&As reduce app removals and sales, while non-horizontal M&As restrict market expansion by curbing new and purchased apps. These findings highlight distinct strategic differences between horizontal and non-horizontal M&As, underscoring the role of app substitutability and complementarity in shaping post-M&A outcomes.