With a surge in Big Tech investment in emerging startups advancing everything from AI to cryptocurrencies to biotechnology, the market is rife with hopes for human advancement through innovation. But what whispers will echo from a conference room with two-way mirrors as the giants extend their tentacles to potential competitors?A new trend around the influence of minority positions on boards is shaping today's dominance. This should prompt regulators to re-evaluate antitrust frameworks developed long before the complex intertwining of strategic investments between commercial platforms and startups.
Who is really in the boardroom?
Unjust enrichment by interfering minority investors can result in subtle forms of anticompetitive harm. While digital platforms compete for market share, insiders can creatively hobble the competitors they fund at the same time. Corporate venture groups can draw on support when investments in startups face business challenges, similar to how some investors cut losses in difficult situations. Researchers Colleen Cunningham, Florian Ederer, and Song Ma found that large pharmaceutical companies acquired rival companies to eliminate threatening innovators, labeling this tactic a “killer acquisition.” I named it.
In an upcoming new article on board observers, we will examine antitrust risks, corporate venture capital, and some of the unfair advantages associated with board observers. In fact, in the corporate venture capital context, more than 60% of corporate venture capital deals do not have a serious intention of absorbing the startup by a larger public company, according to a recent study conducted by Ilya Strebulaev of Stanford University. . This seems to be borne out in the Big Tech ecosystem. There, expensive collaborations between large digital platform companies and AI startups persist with similar motives to gain an unfair advantage, even though they have not actually led to killer acquisitions. , this is probably what drives the majority of companies. Joint ventures between big tech and startups.
Similarly, expensive collaborations between these Big Tech cloud-computing companies and AI startups have so far escaped significant antitrust scrutiny. Instead, dominant platforms often infiltrate the boardrooms of potential challengers under the guise of “strategic partnerships.” Once infiltrated, they can exploit deceptive techniques with impunity. Tactics range from predatory pricing to data mining insights to talent poaching. Strategies range from subtle to conspiratorial. In addition to overtly “killing” targets, tech giants are imposing stealth handicaps on their rivals.
Consider, for example, the complicated dance between Microsoft's MSFT and leading AI lab OpenAI. After investing billions of dollars along with other backers, Microsoft secured an observer seat on OpenAI's board of directors, potentially benefiting from the advantages it has gained in strategically important AI developments. Microsoft also incorporated OpenAI's technology into its global cloud and search services, touting the independence OpenAI doesn't give other megaplatforms. Despite the lack of voting controls, there was speculation that Microsoft was steering OpenAI's trajectory. These theories have gained increased traction after Microsoft influenced the OpenAI board and brought back CEO Sam Altman.
In this story, smoking guns are proven to be a foul. Only traces of smoke are visible. Regulators lack the means to dispel the haze.
Unlike obvious violations such as monopolistic concentration, the shadow of unjust domination spreads slowly, escaping the daylight of the watchdogs of past eras. Companies avoid violating standards and innovate on the edge of fairness. And instead of responding proactively, the executor is fixated on retroactively setting precedent. For example, OpenAI could circumvent the board interlock ban because Microsoft appointees would simply “observe” board transactions as non-voting guests. However, some evidence may suggest that observers, while gathering valuable information, can exert significant pressure on decisions that sponsors are reluctant to make. Big tech platforms like Microsoft invest in both actual and future competitors (e.g., other AI companies such as Builder.ai), opening the door to stealth coordination and sabotage. It spreads.
But these practices, which have been employed to gain an unfair competitive advantage, may soon be coming to an end. The FTC and Department of Justice have launched investigations into major technology platforms, including Microsoft, Amazon AMZN, and Alphabet, most recently in January 2024, and are investigating how these companies influence their operations through funding, partnerships, or current or future personnel. We are investigating the competitive impact of the use of force. Competing company. Greg Day, a professor at the University of Georgia, said the study is an important study that could operationalize regulators' growing concerns about acquiring technology and innovation as outlined in the 2023 Merger Guidelines. Antitrust founders like Justice Louis Brandeis were concerned about these subtle threats to competition. In fact, in the early 20th century, proponents of limiting the concentration of economic power proposed two main approaches, both of which required significant government oversight. One view of the method, championed by Justice Louis Brandeis, sought to restore competition by systematically breaking up large corporations and limiting their ability to unfairly control markets.
Federal Trade Commission – Washington, DC.
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Reform may be slow but necessary
Fairness requires an evolved competition law system that is adapted to the shadow games of the digital age. However, while Big Tech is rapidly cycling through startup “partners,” progress toward reform is progressing slowly. When investigating acquisitions such as Microsoft's attempted deal for gaming giant Activision ATVI, agents should consider the target's patronage network, which is interwoven with supply chain ties that historical equity investments and concentration metrics miss. is. The review process should track the links of influence between companies that share funding, services, and staff at every stage of growth.
Regulators should carefully consider whether notifier requirements should be extended to apply to non-executive director, observer or informal advisory appointments with access to competitively sensitive strategies. And regulators need to reconsider the standards raised by Professor Jonathan Barnett and others governing the potential conflicts of interest that increasingly characterize technology partnerships. Finally, enforcement authorities are relying on Article 5's prohibition on general unfair competition, a “catch-all” provision drafted for the unpredictable and incalculable crimes we face today. , urgently requires powers against anticompetitive conduct that go beyond mere mergers and monopoly rights.
board member
getty
Innovative startups that drive progress succeed or fail based on the merits of their imagination and execution, rather than the machinations of entrenched incumbents. To protect the integrity of entrepreneurship and achieve new levels of technological achievement and consumer welfare, we must reduce the coercive effects of platform privilege. The aspirations of visionaries around the world rest on leveling the playing field clouded by anti-competitive specters. We need to be vigilant in keeping with the times.
