Geoffrey A. Manne headshot

President and Founder

Geoffrey A. Manne is president and founder of the International Center for Law and Economics (ICLE), a nonprofit, nonpartisan research center based in Portland, Oregon. He is also a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics. Previously he taught at Lewis & Clark Law School. Prior to teaching, Manne practiced antitrust law at Latham & Watkins, clerked for Hon. Morris S. Arnold on the 8th Circuit Court of Appeals, and worked as a research assistant for Judge Richard Posner. He was also once (very briefly) employed by the FTC. Manne holds AB & JD degrees from the University of Chicago.

Financial Regulation

Antitrust Mergers & Merger Enforcement

Popular Media

Type I errors in action, Google edition

Does anyone really still believe that the threat of antitrust enforcement doesn’t lead to undesirable caution on the part of potential defendants?

Whatever you may think of the merits of the Google/ITA merger (and obviously I suspect the merits cut in favor of the merger), there can be no doubt that restraining Google’s (and other large companies’) ability to acquire other firms will hurt those other firms (in ITA’s case, for example, they stand to lose $700 million).  There should also be no doubt that this restraint will exceed whatever efficient level is supposed by supporters of aggressive antitrust enforcement.  And the follow-on effect from that will be less venture funding and thus less innovation.  Perhaps we have too much innovation in the economy right now?

Reuters fleshes out the point in an article titled, “Google’s M&A Machine Stuck in Antitrust Limbo.”  That about sums it up.

Here are the most salient bits:

Not long ago, selling to Google offered one of the best alternatives to an initial public offering for up-and-coming technology startups. . . . But Google’s M&A machine looks to be gumming up.

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The problem is antitrust limbo.

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Ironically that may make it less appealing to sell to Google. The company has announced just $200 million of acquisitions in 2011 — the smallest sum since the panic of 2008.

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The ITA acquisition has sent a warning signal to the venture capital and startup communities. Patents may still be available. But no fast-moving entrepreneur wants to get stuck the way ITA has since agreeing to be sold last July 1.

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For a small, growing business the risks are huge.

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That doesn’t exclude Google as an exit option. But the regulatory risk needs to be hedged with a huge breakup fee. . . . With Google’s rising antitrust issues, however, the fee needs to be as big as the purchase price.

Filed under: antitrust, business, cost-benefit analysis, google, law and economics, merger guidelines, mergers & acquisitions, technology Tagged: error costs, google, ITA, Venture capital