Amazon may have withstood stricter antitrust rules because of internal build capacity

A new study by Prof. Edward Snyder and antitrust lawyers found that the stricter 2023 U.S. FTC/DOJ merger guidelines would have provided ample grounds to challenge many of Amazon's historical acquisitions, including Zappos and Ring, reflecting a significant shift in antitrust enforcement for large platforms. However, the study suggests Amazon's overall growth might not have been significantly hindered, as the company could have developed capabilities internally. Snyder also warns that the guidelines' vagueness and broad prosecutorial discretion could lead to politicized enforcement and potentially stifle innovation among tech startups by limiting acquisition opportunities.

Analysis

A new study featured in the Review of Industrial Organization suggests the 2023 FTC/DOJ merger guidelines, if applied retroactively, would have provided a strong basis for challenging many of Amazon's 280 acquisitions made between 1998 and 2022. The analysis highlights that deals for Zappos and Ring could have been contested on grounds of eliminating a nascent competitor and vertical foreclosure, respectively. However, the study posits that Amazon's growth trajectory would likely have been unaltered due to its robust internal capacity to develop technologies in-house. The primary concern raised by the study's author, Prof. Edward Snyder, is not the direct impact on Amazon but the broader consequences of the new rules. Their vagueness and lack of 'safe harbors' grant enforcers wide discretion, creating a risk of politicized enforcement that could fluctuate between administrations. Furthermore, this stricter stance on acquisitions, particularly of tech start-ups, may disincentivize innovation by limiting a key exit strategy for founders, potentially harming the vibrant US tech ecosystem.

Key Decisions for Investors

• While Amazon faces heightened M&A regulatory risk, the analysis suggests its strong internal development capacity provides a significant buffer, meaning investors should continue to prioritize organic growth drivers over regulatory headline risk.
• Factor in increased regulatory uncertainty and potential execution friction for future acquisitions across all large-cap technology platforms, as the vague 2023 guidelines may slow deal-making or lead to unpredictable challenges.
• Consider the potential for suppressed valuations in the venture capital and small-cap tech sectors, as a more restrictive M&A environment could limit profitable exit opportunities for innovative companies that rely on an acquisition-based strategy.