Transcript of Conference Call on Structural Presumption for Merger Review with Tommaso Valletti

May 24, 2023

On May 19, The Capitol Forum held a conference call with Tommaso Valletti, currently Professor of Economics at Imperial College Business School and formerly the Chief Competition Economist of the European Commission, to discuss his recent paper, “Structuring a Structural Presumption for Merger Review.” The full transcript, which has been modified slightly for accuracy, can be found below.

TEDDY DOWNEY:  Hi, and thanks to everyone for joining us for today’s call. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And with me today is Tommaso Valletti. He’s Professor of Economics at Imperial College Business School and he was formerly the Chief Competition Economist at the European Commission. He also recently coauthored a paper titled “Structuring a Structural Presumption for Merger Review,” which is going to be the focus of this call. And a quick reminder, I’m going to interview Tommaso and then we’ll get to questions from the audience. If you have questions for us, you can fill them in the chat, the question bar on the go to webinar app. Or you can email us at And Tommaso, thank you so much for doing this today.

TOMMASO VALLETTI:  Hi, Teddy. Hi, everybody. And thank you for having me.

TEDDY DOWNEY:  Yeah. So I really enjoyed this paper. Maybe you could just quickly ‑‑ I think it would be good to start with why you think the consumer welfare test standard is not fixable, and then maybe walk us through the sort of highlights from your paper.

TOMMASO VALLETTI:  Well, the starting point is a very general observation that over the past three decades, more or less, markets have become increasingly more concentrated. So industrial markets, I’m not talking about antitrust in a narrow sense. Also, we have witnessed increases in market power, increases in margins, reduced dynamism. So a series of factors. There is debate over each one of them individually, but the bigger picture is quite consistent and going in one direction. And this is coincident with the period where we have enforced the consumer welfare standard.

So we have seen in practice what the consumer welfare standard means. I mean, irrespective of the definition, what do you mean about it? What do I mean about it? We have seen the application. And the application, which has also coincided with greater use of economic analysis, by the way, in antitrust, that has basically led to a progressive under enforcement.

So a few figures might help across the two sides of the Atlantic, starting with my side in Europe, the European Commission — and I was working with them some years ago. Over the past 30 years, the European Commission has blocked on average one merger per year. For over 30 years, the number is one. In the United States, if you look at the cases that were litigated by the DOJ in the nineties, there were about 150 per year and then two decades later, they went down to about 50, 60. So, of course, now there’s a change and we are looking at something new. But I mean, these trends are unequivocal. So, irrespective of any theory behind the consumer welfare standard, I’ve seen that by every metric the application of the consumer welfare has failed in practice.

So that’s where I start from. And so and I also think that mergers are particularly important, perhaps they are more boring. But again, in practice, they matter a lot. Because they instead of having to do very difficult exposed cases when dominance has already been reached, when an abuse potentially is happening, and then these cases are taking ages. I ran, as Chief Economist of the EU, I mean, Google Shopping took seven years, just as an example, for a variety of reasons, of course. But these are not healthy metrics either. So you want to prevent these kind of conditions from happening. And so being strong on mergers, which we do need collectively as a society, is the starting point of any antitrust enforcement.

TEDDY DOWNEY:  And your paper goes through creating a structural presumption. And I think that’s something that the forces here, as they’re considering new guidelines, which we’re expecting to come out next month – although, that’s been pushed back a number of times already ‑‑ is something that I think everyone in that sort of anti-monopoly movement kind of agrees with you, that there should be a structural presumption here. That we should be coming up with structural rules. But it I think the thing that the enforcers are grappling with is it’s hard to kind of define those terms. It’s hard to set those levels. And I’d love to get your, you know, your paper discusses a lot of this, looking at different indicators and coming up with presumptions. And I’d love for you to walk us through your thinking there.

TOMMASO VALLETTI:  So my thinking, I’m a very orthodox economist. I’m not doing anything which is beyond what economics says. Although, it doesn’t often percolate through the antitrust circle. So, first of all, for economists, every horizontal merger in the absence of efficiencies is bad, period – every. So if anything, there is a presumption that any concentration coming from mergers is not good for consumers. I will return to my comment, which is in the absence of efficiencies, I will return to this point. But this is an uncontroversial point as a matter of economics.

So we have to start from what economics tells us. So structure matters. Structure matters also, because big firms are those that, at least in the first instance, saw a prima factor and those which are more likely to have market power for whatever reason. So I’m not against organic growth at all, but they got there because they have something special. And once you get there and you are large and you are not easy to displace, it’s because you have a greater power that they are.

Also, and this is where size matters. These are the firms where the risk of harm to markets, to consumers, to society and other interests that we might have in society, are the greatest, precisely due to their size. So it makes a lot of sense to concentrate limited resources on those firms that matter a lot. A lot.

So I mean, it’s a very pragmatic proposal, which you’re saying. I mean, apart from all the sophisticated arguments you can make, but the journalistic headline, which to me a lot of power, is if you’re big – and we can talk about what is big. And I will be more precise about it. But if you are big, if you have lots of resources, you should make, don’t buy. Okay. That’s a very simple rule. It’s something that firms can anticipate. It has also legal certainty, make, don’t buy. This is a very pro-competitive message, by the way. It doesn’t apply to everybody. It doesn’t. It doesn’t. It applies also beyond a certain level.

And then I mean, there are a variety of indicators. I don’t think it’s very difficult to come to terms with those. To be frank, every indicator by definition, is imperfect. But we shouldn’t debate endlessly. I mean, we have to be pragmatic and these indicators can be cumulative. And in the simple proposal that you refer to, which is a policy paper that Filippo Lancieri and myself wrote for a conference that Luigi Zingales had in Chicago, I think it was a couple of months ago, and they asked us to talk to write it. And we will publish it, but it’s not an academic piece of work, by the way. There’s nothing to do with it. It’s a very pragmatic proposal.

So these indicators can be structural indicators. We use them. So some can be obtained at the firm level. For instance, an interesting debate we had in Europe and in the U.K. recently is the regulation of big tech. Our proposal is beyond big tech, by the way. It is also related to big tech, but it’s beyond those.

So for instance, in Europe, we have the DMA, the Digital Markets Act, which has defined gatekeepers and for the definition of a gatekeeper. So the operators, the firms which are designated somehow as firms that should be subject to some sort of ex-ante regulation of indicator like turnover, market capitalization, monthly active users. I mean, you can be very inventive about it and you have structured information at the firm level.

I would add also some information which is that easy to obtain through the accounts of firms is about margins. So the gap between the price of a firm and some other measure of their cost, that’s a direct indication of the market power that they have. So firm level structural parameters are definitely within the reach of regulators to obtain.

Then transaction level data. So some things that we have overlooked in recent years, specifically when it comes to too big tech, but also to pharmaceutical companies. So the price, the price tag, of an acquisition has very important information. So now, I mean, the latest case in town is Microsoft, Activision. I know nothing about gaming online, but when somebody is willing to pay $69 billion to buy an online game, it raises questions, a lot of questions. And usually, when you start asking questions, you will find a lot of internal documents also pointing in certain directions. As we have learned in the past from other big tech acquisitions like Facebook, WhatsApp, Facebook, Instagram, et cetera. So the capital evaluation is something. So the price tag on the acquisition is important.

And then we have more traditional ones. The more traditional ones are structural parameters such as indicators of market concentration, something we called the Herfindahl index of market concentration. I want to be mindful there, though, that these things are quite easy to adjust and to manipulate. So I wouldn’t want to repeat the same mistakes as in the past where we do ‑‑ so the parties will try to do anything they can to come up with very inventive market definitions. So I don’t know. Amazon is competing for the attention of people. Or online stuff, it can be anything that you find on the Internet. So I would be more draconian and look at the industry aggregate information which is available. This is collected by statistical offices by the ONS in this country, in the U.K., where I’m based, et cetera. So there are ways of looking at structural indication of market concentration and you can build on those.

TEDDY DOWNEY:  We’ve gone through a lot already, actually. And I want to come back to what you said about economists in the antitrust space kind of disagreeing with some of your premises here. And I want to get your thought on why that is. What you’re saying, to a journalist, this all makes perfect sense. I’ve always wondered why they don’t spend more time thinking about the premium that the company’s paying. Wall Street calls it a strategic premium. But the antitrust enforcers for years would just look past that as something they don’t care about. Just as an example, one of the things that they could look into more. But on a lot of these points, and antitrust economist would be disagreeing with you, I think. And I want to get your take on why there is that departure, like what separates that type of economist say you are versus your typical antitrust economist?

TOMMASO VALLETTI:  Yeah. So I think the answer to your question is it depends on who you talk to. So surprisingly, if you talk to the majority of economists outside the antitrust very narrow circle, they would agree with me. So this might sound a bit arrogant. But if you ask two academic economists, for instance, do we have a market power problem? Do we have an under enforcement problem? With all our caveats because that’s ingrained in what researchers are. We have lots of doubts and that’s why we do research. They would largely agree with this perspective, that the markets, not markets in general, but the markets that the antitrust authorities deal with are problematic markets. These are markets where competitive forces are not working fine. This is not Economics 101. That’s not the starting point. These are super concentrated oligopolies.

And so that’s why we study them, because that’s where competitive forces are not at work. And so they need some kind of intervention  exposed. And that’s why there are interesting objects to study academically. Then you go into the antitrust, a much more narrower circle. And most academics, by the way, don’t do any consulting. And I should disclose, since this is important, I don’t do any consulting and haven’t done since I left the Commission for personal reasons. The most important one I want to preserve a reputation for being — you may disagree with me, but I don’t have an agenda other than my ideas. And so, instead there’s a lot of conflict in the narrow circle of the antitrust.

So very few economists which are involved in the index, very few academics. A lot of economists which are consultants, which is a very thriving business. So economics has been successful. The big companies, we know them, Compass, Lexicon, CRA. In Europe, there is RBB and a few others. And the revenues of each one of these companies is in the range of billions of dollars per year. So it’s a big business. It’s a big business.

And it’s unsurprising since there is a lot of money at stake. The mergers I was dealing with at the Commission, we had, among others, buying Monsanto that this was a merger worth $100 billion and others. So when there’s money at stake, I mean, obviously these companies will do whatever it takes to get the merger approved, which means good consulting fees and which means a lot of advocacy, as simple as that.

So the antitrust bubble is very narrow. It works according to certain narratives that they keep repeating. And they, you know, we concentrate that this is another instance of your consumer standard, which in practice has meant that the price effect, has meant some methods that to the lawyers they sound very mathematical, they sound very precise just because there is a few numbers and a few Greek letters. But actually, they are not very robust at all. And I can tell you, as an academic who knows exactly what’s behind those things, these are not methods that work in practice. They are used. They are very much used.

So you have this very narrow view of the world which has been basically used to support a certain narrative, which was a laissez faire narrative in a context where laissez faire is not the right policy answer. So this is the disagreement. So there are even well-intentioned economists who have seen things through a particular set of lenses. And I would challenge them, and not in ideological terms, but ask them our methods, have they worked or not? How do you reconcile that the fact that we have applied sophisticated economics, that how they call it for 30 years, every merger, according to this sophisticated economics, should have been good for society because we applied those methods, right? So we did divestitures approval. We did all those according to the playbook of sophisticated economics that they were trying to use. But in practice, all those mergers didn’t go well. In practice, all the prices went up.

So what did we miss? So there must be something wrong in the foundations of our approach. And this is where we have very much failed in practice. So I don’t want to go to the first principles, but these methods, as a matter, people have to open their eyes. How come we have blocked one merger per year over 30 years? How come they that the United States has never blocked anything in the digital sphere for 20 years? So how come that all the mergers, AT&T, Time Warner, mobile cell phone, that with our methods, we predicted that nothing wrong would go and instead things did go wrong? Of course, that work is complicated. We couldn’t anticipate anything. The discussion had become so self-referential.

So the discussion among antitrust economists, on both sides, working for the enforcer or working for the parties, is a discussion about the model we use. And we never try to think about whether these models have any impact in practice or not. So it’s a very narrow discussion that we have so far. And the models we have used have failed. They have failed. We have to acknowledge and maybe they are elegant, fine. And I like elegance as a matter of principle if you want. But if they don’t predict what the reality is, we have to start talking about the facts. We shouldn’t talk about the models.

TEDDY DOWNEY:  No, I think it’s super interesting. In your paper, you talk about ‑ I‑ think maybe a real world example could help here as well. You talk about some economists in Europe looking at expanding the consumer welfare test to look at innovation theories of harm. And you mentioned that agriculture merger, Bayer-Monsanto, I think that’s the one that you mentioned in here where you try to apply an innovation theory of harm. Can you talk a little bit more about that, like why that didn’t ‑work. Is that a good example?

TOMMASO VALLETTI:  Whether it’s a good example, I’ll let your judge. So we had a few years back, a merger wave in agrochemical. You mentioned Bayer-Monsanto. But the first one was Dow DuPont, and then there was Kam China  Syngenta. So this is a sector that over decades has become incredibly concentrated. Fifty years back, we had 50,60 agrochemical companies competing against each other, and now we’re down to four, more or less, and in some areas, only three. So it’s a super concentrated market.

So this was a point in time when I was Chief Economist and we thought of using an expanded version of the consumer welfare standard. By expanded version, I mean the following. If you talk to an economist, most economists would say, most economists would be probably very dissatisfied with the application of the consumer welfare standard, because in practice it means static price effects. And the economists would say, but our welfare standard, consumer welfare, is so much wider. We have this concept of a utility function and we can put anything we want in the utility function, prices, innovation. It’s a very flexible concept. So let’s use this notion in practice.

And that’s what we did. That’s what we did. We tried to do this correct kosher application of the welfare standard, including innovation. And we did our studies. And it turned out that once you do the modeling, et cetera, that mergers are not good for innovation and the cause is fairly intuitive. So firms compete. They compete by trying to get rivals’ market share. So taking customers away from the rivals and you do that normally by setting a cheap price, but you can also improve upon your product. So the locus of competition is complex. It’s prices, but also innovation. And if you merge, this competitive pressure is reduced.

So you can show formally that under really a very wide range of sort of circumstances, mergers are not good for prices and they’re not good for innovation either. We rarely do that, but we tried to do it. And we tried also to do some empirical analysis around it, not just a theory, but look at patterns overlapping between research and developing capabilities of these firms. So we do it in the good way that the consultants would say.

However, once you do that, immediately you have the consultants pushing backs and saying, how do you measure innovation? Are you sure it is accounting the patterns? What about citation? What about this? What about are you gazing in a crystal ball? How do you predict the future? So the pushback of the profession was terrible I thought. Instead of dealing with an important issue, they were completely destructive.

So on those instances, these agrochemical waves, Bayer-‑Monsanto, DowDuPont, the Commission applied these innovations on each one because it requested a very large divestiture that it wouldn’t have done otherwise. It did this innovation analysis. But the pushback from the profession, from the bar, from everybody, I mean, largely the academics were absent but the response from the inside was very tough.

A lot of resources were burned, a lot of scars that were inflicted upon officials that then they decided, oh, I don’t want to have this kind of battle any longer. So I prefer to use the standard playbook, our simple starting price effects, having the usual conversation about the model, which has it been accepted over time between enforcers and parties, irrespective of the results of that model because that’s the way we do things. So this was interesting for me. It was good. But did it make an impact? No, it didn’t make any.

So where I’ve changed my views about things ‑‑ I’ve changed my view about many things ‑‑ but one of those is that if you asked me five years ago, I’ll say this case five or six years ago when I was in office, can we use an expanded version of the consumer welfare standard to do better? I would have said, yes. An example is innovation nirvana. We can do this and that. But having experience in practice once again, what that means, I now say no. Because if we now introduce additional elements, let’s put labor market consideration in the picture, which I think it’s important, by the way, let’s put privacy into the picture.

And then you have a whole industry of consultants who would exactly thrive on trying to react to these changes. And economics would make an even bigger mess. We don’t need messier economics. We don’t need more complicated economics. I can do that in my office, in my academic papers. That’s what I do in my day time job. Okay, fine. But when it comes to policy, we need simple economics, actionable economics, that can be understood by a judge, by a lawyer. That’s what we need in the structure of presumption is ‑‑ I wouldn’t say simplistic ‑‑ is a simple, powerful message, which has also a rebuttable component. We haven’t spoken about efficiencies and this and perhaps that’s the next level of the conversation. There is a rebuttable component, but the simple economics come from, you know, size. Large firms are the most likely to be to be harmful, mergers of those firms. So these firms can grow organically. It’s not a negative punishing message against them. If they want to do stuff, they have the most amazing resources in the world to do that. Do your own research. Do your own development of products. Don’t buy another potential rival.

TEDDY DOWNEY:  I want to get into the rebuttable presumption in a second. But there are a couple of other things about the consumer welfare test that you brought up a lot of these points and I think this is a fascinating angle to look into more, which is in the U.S. I think the enforcers care a lot less now about what the bar thinks and what economic consultant sort of conventional wisdom is. The same is happening in the U.K., but not in the EU. Not at the EC. And I wonder why you think that is. Why is this divergence happening? I mean, from my perspective, it looks like the EC is now more committed to the consumer welfare test than both the U.S. and the U.K., at least from the sort of enforcement, you know, from the enforcers and how they are looking at things. And I’m just curious to get your thoughts of why that is. And then I do want to get in the rebuttal presumption and maybe one more aspect of consumer welfare.

TOMMASO VALLETTI:  Yes, I have to say that I have noticed a change of narrative and at the level of the Commission. So, I left in 2019. And immediately after I left, of course, it was a pandemic. So most of the resources of DG Comp, the European forces, were directed into something else. Because in Europe, we have mergers. We have antitrust. But we also have state aid, which is something you don’t have in the U.S., which is allowing or not allowing particular financial resources that states, member states, can give to firms. And during the pandemic, there was a huge need to give money to many companies, of course, because of layoffs. So it made a lot of sense.

So I understood a lot of resources were diverted towards state aid rather than usual mergers and antitrust. So that may be a technical reason for a bit. But in general, I’ve seen them going back a little bit. For instance, I disagree on the merger side because it’s the one which is more visible. Antitrust is less visible and it takes a longer time. But I disagree with many – although, I don’t know the details because I’m not involved, but with the philosophy of the current chief economist, for instance, they become a little bit old school again. And they defended the consumer welfare standard of this, I don’t know. Because in principle there is no consumer welfare standard enshrined in the European legislation. But in practice, the way they run cases, especially in the digital sphere, sounded to me at least the very old school. So perhaps the bar instead find them a good case is applying that well known approaches that they had. There may be. There may be. But this is again a conjecture because I don’t have direct information about it.

My former boss, the Commissioner Margrethe Vestager, she had the first mandate, which overlapped with mine, where she was seen as an engine for change. And so, as you know, we ran three cases against Google, one against Amazon, one against Apple. So lots of things were happening. In the second mandate, she’s also the Executive Vice President of the Commission. So she has a wider political mandate. She’s probably thinking about her next job because she’s almost to the end of it. So yeah, I have the impression, but as I said, it’s an impression that she’s less hands on. She used to be extremely hands on. She was very informed about every single file. As I said, this just my conjecture that she’s a little bit less interested in it because she has other priorities and so less of a force for change that she used to be.

But in practice, yes, I haven’t seen anything, any thinking ‑‑ put it this way. I haven’t seen anything coming from Digicom for a bit. Instead, I’ve seen no thinking. A lot of attempts to change things in the US. I’ve seen the UK being at the forefront. So, as you can expect, as an Italian in London, I’m not a Brexiteer. But the only Brexit dividend I can see so far is that the CMA is free to go buy its own and experiment. We need experimentation. Especially, I don’t want to be obsessed with digital markets. But I think because there is a lot of stuff happening in the economy, of course.

But when it comes to digital and big tech, we cannot forget that these companies are controlling parts of our lives. So most likely now we talking to each other the technology we use. But in every daily activity, the way we inform ourselves, we exchange with our friends, we communicate, we shop, we get information. So our lives depend on a handful ‑‑ and as a European, I should add ‑‑ on a handful of American firms. And I don’t think this is healthy generally, especially having lost competition for far too long. And this is one thing.

And the second thing is what we learned afterwards, after the fact, is that we were missing on the dynamics of these markets. We just said expose or may be Facebook, Instagram wasn’t such a great decision. Or Google DoubleClick wasn’t such a great decision after all. Or maybe Google Waze wasn’t a great decision after all. So always after the fact. So we missed that. And so to keep accusing enforcers like the CMA that now with Activision, and I’m not involved, at least they’re trying to get ahead of the game and they’re saying we are looking into this market ten years from now with all the uncertainties. But we are saying having a likely monopolist in the cloud is dictating the rules of the game for the next decade is not healthy for society. That makes sense.

And instead having, again, the European Commission saying we cannot anticipate what the markets are going to be ten years from now, which we know we completely missed it. So we know how it went and we’ve done it for 20 years and it didn’t go very well. So perhaps some changes are needed in that way of thinking, which brings also some changes in the practical tools. And to do that is not just putting more resources into the CMA or DOJ. This will help. Getting more and more people at the FTC will help, undoubtedly. But if we want a structural change so an injection of competition in our economy, which is good for consumers but is also good for society, because I think competition is good for democracy as well. Then we need also structural changes in the law. So we really need to help the enforcers to have a different set of tools through legislative changes.

TEDDY DOWNEY:  So we have legislative changes and we have the new guidelines which are, I think, going to go a long way to these sort of rewriting the rules at least a little bit as far as how the agencies work, analyze them and maybe the courts as well.

But I want to say a couple of things here, because we just got through a lot. And while you mentioned a lot of different things, democracy, control over our lives, that these companies have in their power. That doesn’t sound like a consumer issue. It’s the consumer welfare to me seems like too thin of a word or a concept to capture all of what you’re saying. And I think that’s been kind of behind a lot of the movement in the U.S. You know, look, people are citizens. They’re more than just buying things and caring about price. There are all these other factors. But to your point, if you look at how the U.K., I’m less familiar with their political and sort of philosophical views about changing antitrust enforcement. You make a very pragmatic point, which is, look, nascent markets we’ve gotten that wrong. And so it makes perfect sense to the CMA when they’re doing Activision looks at a nascent market and says like, you know what? We’re going to default to blocking mergers in spaces like this because we think it’s more likely, you know, it’s uncertain and we’re going to assume it’s going to be bad, which I think is also kind of the philosophy in the U.S. as well. And to your point, I think there’s pretty good evidence to sort of make that shift. Instead of saying nascent markets are inherently good and we should just be laissez faire and then you have the actual opposite approach. But I’m wondering if there’s any of this philosophical change hitting at the CMA as well, that we’re sort of seeing in the U.S.? Or if it’s more, as you kind of argued, a lot of just kind of pragmatic?

TOMMASO VALLETTI:  Well, I think it’s important. To remember what was the war? The real fundamental war is of the founding fathers of the antitrust movement, which started in the U.S. It led to the Sherman Act, the Clayton Act, and all those. And these people knew, of course, that monopolies are bad because they reduce output, they increase prices. But was that the main concern of, say, Louis Brandeis? No, that wasn’t the main concern. The main concern of these people was that the largest firms, who have rents by definition, they may have obtained rents in legitimate ways, of course, but once they sit on rents, they will do whatever it takes to preserve those rents. And in the act of doing that. This is bad for democracy, for the democratic process.

So, to summarize in a simplistic way, some people were saying that big is bad. Big is bad for that reason because it can affect negatively society. So to have ‑‑ and we have witnessed it also during the pandemic. The fact that we depend on a handful of firms means that is the opposite of resilience, which is the other word that Europe is ‑‑ I don’t know in the U.S., but Europe was talking continuously about developing a resilient economy. And it’s the same aspect. We are not resilient, if we are dependent. And when you are dependent, you are really at the will of a few unaccountable and unelected private companies.

So I don’t know if this is philosophy for me. This is still very pragmatic. So we have to go and not allow these big firms to do what they want for this big risk that they can affect the rules of the game, the rules of the game of our living, the rules of the game of legislation. We have to resist that because this is going to be good for the economy. It’s going to be good also for investors, by the way.

So if you look at investors, of course, if you are a shareholder of Google, you would want to be the monopolists of the world. Fine. But if I look at investors more generally, it’s not a healthy environment. If you speak to venture capitalist, even in Silicon Valley, given where we are. And they know that every single small entrepreneur as the only exit strategy they have is to sell either to Facebook or to Google. They call themselves Meta and Alphabet now, but it’s those two companies. I’m oversimplifying, of course. You’re not going to get a lot of money because you’re going to be squeezed.

And so there is evidence work, for instance, by Zingales and others, called the Killzone that venture capital is exiting from areas where there is monopolization in the fundamental markets. So even those whose narrative is we should allow these mergers to happen because it’s good for entrepreneurs, it’s not true in the data. It’s not true. It’s not true. And the reason I just told you. If you are dependent on one acquirer only, you’re not going to get a deal. You’re not going to get a deal. If instead, you can sell to multiple acquirers, you’re going to get a better deal. It’s simple stuff.

So going back to your question, the CMA is obviously an enforcer. They have to enforce the law. So they’re CMA. And I see the same spirit also in what the DOJ and the FTC are doing. They are not doing something esoteric. They are trying to use the tools at their disposal and they are pushing themselves within the current laws. They are pushing themselves and they are doing a good thing. If you never challenge yourself, I mean, you have an easy life. If you always win in court, it is because you’re not pushing the boundaries. And there are gray areas. There are gray areas. And what I appreciate from the current leadership in the U.S. and the current leadership here in the UK as well. So Cachalia has left, but I see the new chief executive seems to be a continuation rather than a change compared to what Cachalia was doing earlier. They are still pushing themselves and that’s good. That’s what a good regulator should actually do, I think.

Different discourse, different discussion, is whether we want to endow those regulators with different tools. For now, they are acting within the current tools. In the US, there were pieces of legislation that had not been used for one reason or another for many years, the Robinson Patman Act and other stuff. And instead they can’t enforce it. But it’s a law. Let’s apply it. And then what I am pushing here is not just do that, but also let’s change the laws in ways that make the life of the enforcers easier.

TEDDY DOWNEY:  We’ve got a question from the audience here, and it’s related to structural presumptions. What are your views on structuring structural presumptions for online platforms, gatekeepers, versus other markets, other merger reviews?

TOMMASO VALLETTI:  So the general proposal applies to every firm. So it’s not specific to the digital gatekeepers. It would apply also to large pharmaceutical companies or large agrochemical companies or large whatever companies you may think of. So it’s applicable across the board.

When it comes to digital, it depends how far you want to go. My opinion is once ‑‑ because the debate, obviously, when you put this thing to practice, is going to be okay. You may be very big in one segment, but then you are acquiring something in a totally unrelated market. So Amazon is buying Whole Food. Some antitrust practitioners would say these are completely non-overlapping markets.

My view there is that once you are a designated company, put it this way, so once you are above the threshold, once the structural presumption kicks in in one of the core industries. So Amazon would be, in my opinion, it would be very likely to be a company subject to the structure presumption. That’s it. Irrespective of what is the target which is being acquired, even if this may renounce to. So when it comes to digital, it’s very likely that some core elements of the economy, search, social networks, e-commerce, there will be some gatekeepers, some designated companies. And so this is where the structure of a presumption would kick in more easily. So that’s the answer to the difference between digital and other companies. But in principle, it can apply across the board.

TEDDY DOWNEY:  Maybe just actually taking a step back for the sort of the less expert audience people, how would you think about a structural presumption for these bigger firms? Just maybe get a little bit into the how and the mechanics setting that out.

TOMMASO VALLETTI:  Sure. But take, for instance, a case which has already happened. Let’s take Facebook, Instagram. So the way it was run, ten years ago, this case was the traditional antitrust bubble, try to do the market definition. There is this obsession with the market definition. And then there was a discussion. And then it was decided that the relevant market was online camera apps. Online camera apps. And then they did some market share computations. And at the time there were three or four competing online camera apps. And then they said, but what about monetization? We don’t know. And then they let it go.

Another one that came a few years later, it was WhatsApp, Facebook. Again, it was instant messaging. There was no monetization. There was no turnover. They couldn’t calculate market share of the online advertising. There was this entire ocean of possibilities online. They are not concerned. They let it go.

Now, if you have a structural presumption, you would see a couple of things. You would see, first of all, that Facebook was already in those years super dominant among social networks. If you read the documents from Facebook, they would say that already from 2013, they were saying we have about 90 to 95 percent of the advertising over social networks in the United States. So they clearly were even bragging this kind of dominance towards their investors.

Then you would have a number of these elements. You would have the tag price on the acquisition. $21 billion for WhatsApp. $1 billion for Instagram. You could have also the numbers. They were not buying really 1015, because it is this narrative that they were just buying talent, which is not true. Because most of the time after the acquisition, talent goes somewhere else. So they were buying already millions, hundreds of millions, of customers. Again, this is size. This is size. This also leads your attention in a certain direction. You start looking at internal documents.

When it comes to those acquisitions, something that is sometimes ignored, there was an app, a spyware called Onavo. I don’t know if you ever heard about it. That was an Israeli spyware, probably illegal what they were doing, but they were gathering market intelligence from the use of our phones, basically without telling us. They were telling us, you, Teddy, are using this much of your phone on these different apps. You, Tommaso, are using your phone. And they were telling this and were selling this market intelligence to the whole industry. At least it wasn’t anti-competitive in that respect.

So Facebook buys Onavo, keeps that information for itself. They see that  the best app in that period was WhatsApp. And there is a message which is sent to Zuckerberg, but it’s usually in internal docs. The companies would come back to you and say, well, this was an internal person or whatever. It’s not relevant. This was information sent to the top, to Zuckerberg, and say, Onavo tell tells us that WhatsApp, which is not ours, is doing extremely well and much better than Messenger, which is our own internal service. What shall we do? And famously, Zuckerberg said it’s better to buy rather than to make it, which is the opposite of what I’m saying. So let’s buy them. Let’s go for it. So when you have all these elements together, I mean, you have a very strong case to say, no way, stop it, stop it. You should not do it, okay? So, of course, now we have the benefit of hindsight, but this information was available at the time, was available at the time. With a structure presumption, this acquisition would not have happened.

TEDDY DOWNEY:  And not only would it not happen, but we have a recent case, the Meta Within case, which was a tricky case, but the market definition was really tough. And so you’re taking this whole thing, this point that you’re saying, which is, look, if you get into market definition with the way things are now, the economists, the lawyers, will just pick that apart and just try to find a way to make it impossible to do the enforcement. And then it becomes really a lot more complicated than it needs to be in many respects when you’re litigating these deals. A structural presumption presumably would just make that so much easier, so much clearcut and probably deter that type of acquisition in the first place. That seems like the goal, you know, how things would actually play out if you did this, correct? Or is that not the right way to think about it?

TOMMASO VALLETTI:  It is the right way. And also, think about two extra things. And they’re both to do with asymmetry. One is the asymmetry of resources between the enforcers and the largest companies in the world. And the other thing is asymmetric information about the transaction. So the current system is so wrong in multiple ways, it hasn’t worked. But it is also very wrong because all the tension is in this initial phase of this crazy market definition and this obsession, as I called it earlier, with market definition. And it burns amazing resources. And regulators don’t have infinite resources, contrary to the view of many people.

So the Commission ‑ –‑ I’m a bit critical of the Commission now in Brussels, but they are great guys. It’s a thousand of them for a population of half a billion people, citizens of the European Union, okay? One thousand for half a billion citizens. And instead for every case you have the Google, the Amazon, the Monsanto. So you can imagine the resources they can bring on the table. And your burning resource is time, time essentially, on this crazy market definition. So very little is left for anything else. Instead, if you have structure presumption, you can be very quick on this.

Then there is the rebuttable component and asymmetry, asymmetric information. So now you’re asking the regulator in the current system to make predictions about this Meta Within, what’s happening. As a regulator, you don’t know. Yes, you are dealing with digital, but you’re also dealing with cement, with pharma. You are dealing with a lot of stuff. You don’t have the industry knowledge that the companies have. The companies have their own line of business, and I believe that the burden of proof should be on the side which has better information.

So with the rebuttable components, I’m not necessarily saying block everything, but you guys, after I’ve done my structure, I start from my structural presumption don’t do it. Unless you prove it to, as a regulator, in a cogent way with good economics, good data, and you don’t have alternatives that you really need. For instance, Meta. Do you really need to buy within, in order to deliver something? You are telling me, I mean, your half a trillion dollars of market capitalization. Microsoft, $2 trillion. Do you need to buy an online game? Can’t you do it? Can you prove to me that you really have to do this transaction in order to achieve something useful for consumers and citizens?

So the burden of proof is on you. Do the work. So this is also the allocation of resources. They are going to do the work. Surely the consultants want to thrive. So if there is a consultant in the audience, you shouldn’t despair because there’s still going to be some work for you, but a different kind of work. And I think it’s going to be much more productive kind of work on the substance of the case rather than these esoteric diversion ratios, talking to the expert, et cetera, which have little bearing on reality and they have not worked in practice, which I want to reiterate.

TEDDY DOWNEY:  Yeah, to your point about being obsessed with market definition, I think when you’re big and you have all these resources, the whole, to your point, the buy don’t make. It’s pretty it’s pretty obvious.

TOMMASO VALLETTI:  They want to buy.

TEDDY DOWNEY:  They want to buy domain. They want to buy domain. You said they need to make, don’t buy. One of the things that I’ve always come back to is like, okay. And this came up in Meta actually. The judge is just asking, you know, when they’re asking this simple question, like, what’s the worst thing if this merger gets blocked? You just have to take your army of developers and do this yourself? That’s the worst thing here? I always find that to be compelling. If you’re talking about creating these presumptions, it makes a little bit more ‑‑ and there’s been this, okay, if you make an error that’s so bad, if the error takes the ability too for an executive to buy whatever company they want away, that harm seems so small compared to, oh, shoot. I just have to make this myself. Anyway, I know we’ve already talked about that. But what you say makes total sense.

We have another question from the audience, and I’ll let you go after this one. This has been such a great conversation. And I think we’ve already touched on this, but I want to ask it because it’s an audience question. How should authorities review markets for products that don’t exist yet? I’m guessing this is getting at this nascent idea, but I’m guessing. Or maybe pharmaceutical products that are in development. I’m not sure what they’re getting at, but maybe you can talk about that.

TOMMASO VALLETTI:  Somehow I think I have partially responded to this and I said that structure presumption could kick in if you are already super dominant in some core elements, irrespective of the market you are targeting. And so that’s an answer. Second answer is, yes, markets are nascent. But in the tag price, you have billions of dollars, you have to understand. And by the way, there is venture capital information which has to be used. It has to be used. So there are proxies that we can make.

So you can take away tangible assets from the acquired firm and see what’s called the economic goodwill test. So there are methods to do that, which are raising questions. And these are going to be thresholds for the presumption to kick in, remember. By the way, you can also, you may make the rebuttable part easier or more difficult. My view is that above a certain threshold, you make the rebuttable part almost impossible. So this is the equivalent to saying once you are super dominant, in simple jargon, make, don’t buy, period, period. There is no rebuttable part. You can still grow organically.

As I said, this is not something against size as such. You are still encouraged to compete on merit. It’s a pro‑competitive proposal. That’s what we want to see in our economies in the end. It is not that the companies get busted for whatever. We want to see more competition. But in other cases, there are gray areas. You may make that about the rebuttable part the easier. So if there a very strong complementarities, if there are financial constraints that would be resolved.

But again, to me, it’s important, why do we need a merger to achieve that? Why there are not other contracts at arm’s length that can be used to achieve those synergies? So again, at this conference I mentioned, which is always interesting to listen to a variety of views, there was a presentation by Oliver Hart who doesn’t do at all competition policy, but is a Nobel Prize winner in economics. So you do want to listen to a Nobel Prize winner in economics. And Oliver was saying, the way I see markets growing, and I’m not into blockchain ‑‑ he’s an old generation economist. He’s not into buzzwords. But more and more, because of the information available, contracts are becoming more and more complete. So it’s becoming increasingly easy in a variety of ways to write complete contracts. Therefore, the narrative that a merger is needed to because of the hold up problem, all these things that you couldn’t do by a contract, are becoming less and less important.

So he’s saying, from a different perspective, given that we are now in 2023, given that technology is available, so his presumption would be I can do anything a merger can do via a contract. But what the merger can do that the contract cannot do legally is to abuse market power. So he was very much in favor of the structure presumption from a different angle, not the pragmatic one I was coming from, but from one as an economic theorist. If indeed contracts are becoming increasingly complete mergers, the only rationale left to merger is the anti‑competitive intent.

TEDDY DOWNEY:  I think this conversation, you know, what’s so interesting to me is we’re thinking about ways to change incentives for these big companies to do something that’s more in the public interest. And it’s incredible. I mean, I’m just thinking about the lawsuit that came out the other day against Amgen in the U.S. And you look at it and in the pharmaceutical industry, there’s an incentive to buy up companies at the end of the life of a drug, that have drugs at the end of their life. So that you can preserve their position and protect that drug against new competitors. And if you just take these incentives away, you’re taking that money and then it’s going into either investment in new drugs or buying up companies that are at the beginning or sort of in the stages where they’re in development and need scale. But ostensibly, the M&A would be, at least arguably, better than this sort of very, I would call it, perverse reason to do M&A almost. Because you’re good at preserving your monopoly, it just seems like a bad incentive. And I like the way that you’re talking about all of this is realigning all of these incentives for sort of more productive growth, that would otherwise have, I think, a pretty compelling argument that it’s having a good impact on society. Is that a fair way to characterize kind of how we’ve been talking about all this?

TOMMASO VALLETTI:  Absolutely. So the message that I’m trying to get through is that society needs better ways to compete and we need competition. We need competition because competition has a lot of positive effects. We also need to tell the wider society why competition is good. Sometimes there is a misunderstanding. People think that recently globalization people are very much against it because they saw the negative effects of concentration of market power. So globalization and market power didn’t produce very good effects for our society. But we need to tell the general audience, to tell citizens that competition preserves really jobs, preserves innovation, preserve something which is in our collective interests. You mentioned pharmaceuticals. I have a lot to say about pharmaceuticals, but perhaps this is for another conversation, another day.

TEDDY DOWNEY:  I love it. Well, that’s a great reason to have you back on. And I’m a huge, huge fan of yours, Tommaso, and I followed you for years, and this paper in particular was really compelling. And I really can’t thank you enough for coming on today.

TOMMASO VALLETTI:  Thank you once again for having me. Thanks a lot.

TEDDY DOWNEY:  And thanks to everyone for joining the call today. This concludes the call. Have a great weekend, everybody. Bye-bye.