Competition authorities worldwide are concerned about the growing power of Google, Amazon, Facebook and Apple — the so-called ‘GAFA’ firms. In this article, Matt Olczak considers whether Amazon’s investment in Deliveroo would harm competition, and highlights the important role ‘entry’ can play in the competitive process.
One concern raised by competition authorities is that Google, Amazon, Facebook and Apple have been able to grow by purchasing small, innovative start-ups. Examples include Facebook’s acquisitions of Instagram in 2012 and WhatsApp in 2014. Sometimes referred to as ‘killer acquisitions,’ the worry is that the leading tech firms have been acquiring these start-ups to prevent them from posing a significant competitive threat in the future. This contrasts with the conventional wisdom in competition policy where mergers between large firms have been seen as a cause for greater alarm.With this new reason for concern in mind, the attention of the UK’s Competition and Markets Authority (CMA) was pricked in mid-2019 when it became clear that Amazon had become a minority owner in the online food delivery company, Deliveroo.
Deliveroo
Deliveroo was founded in 2013 and has grown rapidly to become a highly recognised brand. In addition to offering customers a diverse range of restaurant-cooked meals delivered straight to their homes, it also provides a grocery-store delivery service, in partnership with Co-op among others.Having been founded in the UK, Deliveroo rapidly expanded globally. However, by 2017 this resulted in it making losses and looking for new investment to fund continued expansion. In addition, investment would help to improve the service provided by growing its delivery-only kitchens business and enable it to be less reliant on links with traditional restaurants.Amazon saw this as an opportunity and was one of the big investors in Deliveroo. This investment would enable Amazon to participate in the management of the company. Despite this not being a full merger or acquisition, the CMA’s remit allows it investigate acquisitions where a company gains a material inf luence over the policy of another business. Consequently, the CMA launched an investigation into Amazon’s investment.
The CMA’s initial investigation
Late in 2019, the CMA announced that it had completed its initial investigation and had concerns that the investment would be harmful to competition. These concerns related to both the online grocery-store delivery market and the online restaurant delivery market more commonly associated with Deliveroo.
Online grocery-store delivery
In online grocery-store delivery, Amazon and Deliveroo are two of the leading players in the market. This is a market that is expected to grow in the future and the CMA believed that competition between Amazon and Deliveroo would have intensified going forward without any link up between the firms.Economic theory makes clear the benefits this would bring since it demonstrates that as competition intensifies, prices paid by consumers fall closer to production costs. This can be seen by comparing the benchmark models of competition.
