I. Introduction – The Theory and Its Harm
Imagine that a startup called ‘Pied Piper’ builds a new social media platform with a unique way of connecting users, something that’s gaining early traction. A dominant tech firm, sensing the long-term threat, acquires it. But instead of helping it grow, the platform is quietly shut down, and its best features are absorbed into the buyer’s existing service.
At first, this may seem like a win for consumers, who can still enjoy the features, perhaps even more smoothly. But what’s lost is the chance for real competition. The startup might have grown into a strong rival, offering a different model, maybe with better privacy, fewer ads, or a healthier algorithm. Now, that alternative never sees the light of day.
Here, Pied Piper’s acquisition is a nascent acquisition. In cases of nascent acquisition theory, the acquired firm is already active, perhaps on a smaller scale, in the same market as the buyer at the time of the deal. If Pied Piper’s innovation was not absorbed by the buyer and instead was completely shut down, it would be termed as a killer acquisition.
These cases have become the new normal for the current economy, especially in digital markets. Adobe/Figma, Instagram/Meta, WhatsApp/Meta, GIPHY/Meta, PacBio/Illumina, Waze/Google, Plaid/Visa, etc, are just a few real-life nascent acquisition examples that have raised antitrust concerns.
This article examines whether the Indian competition regime is equipped to deal with this growing threat. It draws on global approaches from jurisdictions like the US, EU, and UK, investigates the pitfalls of India’s antitrust framework, and recommends ways it can resolve this blind spot.
II. The Complication with Nascent Acquisitions
C. Scott Hemphill defines a nascent competitor through three elements: it is an innovator, introducing new technology or business models; it possesses future potency, meaning its competitive strength is unproven but promising; and it poses a serious threat to the incumbent, even if that threat hasn’t fully materialized.
Detecting nascent acquisitions is one of the toughest challenges for competition law enforcement, largely because the threat posed by such startups is still in the future. These firms are usually small, unproven, and have not yet developed the full capacity to challenge powerful incumbents. A classic example is the PacBio/Illumina case, where PacBio’s long-read DNA sequencing technology had the potential to disrupt Illumina’s dominance, but its ultimate success was still uncertain. Therefore, it’s difficult to predict whether it would have grown into a serious rival had it not been acquired.
This challenge is further compounded by the fact that, with small assets and low turnover, many of these deals do not trigger the notification requirements of merger control regimes. In fast-moving industries like tech or pharma, where innovation is unpredictable, this uncertainty becomes even more pronounced. A product that seems promising today could easily fail tomorrow, and that makes regulators hesitant to intervene prematurely.
What makes it harder is that nascent competitors often aren’t directly competing with the acquiring firm at the time of the deal. They might be operating in a related market or offering something different altogether, but with the potential to evolve into a rival. Since there’s no existing price war or overlap in services, proving that the merger will reduce competition becomes a complicated task under traditional antitrust standards.
A good example of this can be Facebook’s acquisition of Oculus in 2014. At the time of the deal, Oculus was a startup developing virtual reality (VR) headsets, and it was not a direct competitor to Facebook’s social networking business. However, Facebook recognized the potential of virtual reality technologies to become the next major platform for online interaction. The acquisition reflected a strategic move to control a future competitive space. The Federal Trade Commission (FTC) in 2020 raised antitrust concerns, noting that Meta’s (formerly called as Facebook) campaign to create a monopoly in the VR market started with the acquisition of Oculus.
Another example can be the acquisitions of WhatsApp and Instagram, which were not fully-fledged social networks when Facebook acquired them, but internal discussions at Facebook revealed fears that these platforms could grow into major rivals. The Visa/Plaid ordeal revealed similar fears of the US Justice Department. At the time, Plaid was not a direct competitor to Visa in the debit card market. However, it was argued that the acquisition would eliminate a nascent competitor poised to disrupt Visa’s dominance in online debit payments.
To build a strong case, antitrust agencies may look for evidence that depicts that the acquisition was motivated by a desire to kill off future competition, such as in the cases of Tomra Systems and in U.S. v. Microsoft. But such intent is rarely stated openly. Internal emails or documents hinting at this strategy can be crucial, but they’re not always easy to find. While internal emails, like Mark Zuckerberg’s on neutralizing Instagram, can be revealing, such evidence isn’t always available.
III. Analysing India’s Competition Law Regime
A. Jurisdictional Pitfall
Flipkart’s acquisition of Myntra, Zomato’s acquisition of Uber Eats, Snapdeal’s acquisition of Free Charge, and Byju’s acquisition of numerous ed-tech companies are all acquisitions that consolidated the relevant market, but didn’t trigger the antitrust regulator.
Each of these transactions involved established digital platforms acquiring smaller, innovative firms that possessed strong technological capabilities, user bases, or growth potential, which are typical hallmarks of nascent competitors. However, because the targets often had limited turnover or asset value at the time of acquisition, these deals did not cross the statutory notification thresholds of the CCI.
The traditional merger control approach focuses on mergers and acquisitions that cross specific assets or turnover thresholds. If a transaction falls below these thresholds, regulators have no jurisdiction to review it, allowing the parties to proceed without scrutiny. This is a problem in the case of nascent acquisitions, where targets often have low turnover or assets.
Using transaction value thresholds was proposed as a solution that can better capture the future potential of a company. When Facebook acquired WhatsApp in 2014, WhatsApp had low turnover but over 600 million users globally, leading to a USD 19 billion deal between the parties. In India, this proposal was reflected in the 2023 Amendment, where a merger, acquisition, or amalgamation must be notified to the CCI if ‘the value of the transaction exceeds INR 2,000 crore and the target enterprise has “substantial business operations” in India’.
However, the European Commission, during its consultation on the EU merger control, considered transaction value thresholds but chose not to adopt them, considering the administrative burden and the costs to growing businesses. There was also a risk that such thresholds might encourage firms to acquire startups even earlier, before they can scale. Another concern is that if the notification triggers are known to the companies, they may try to avoid them intentionally by offering only low acquisition prices for a startup that would have otherwise deserved more.
The Crémer report noted that designing an appropriate transaction-based jurisdictional threshold is challenging. Since only a few transactions raise competition concerns, the threshold must strike a balance by avoiding being too low to capture irrelevant deals and too high to overlook important ones.Bourreau & De Streel note that a threshold based on transaction value would ‘not necessarily increase substantially the number of concentrations to be notified, as the merger transaction value is aligned with the merging firms’ monetary turnover in the majority of cases.’The OECD report also observed that the introduction of transaction value thresholds in Germany and Austria did not lead to a significant increase in the number of notified transactions, which may show the inefficiency of such thresholds.
B. Substantive Pitfall
The Competition Act provides a comprehensive framework for assessing AAEC, based on factors like market shares, barriers to entry, sustainability of effective competition, and the impact on economic development. It also requires weighing whether the benefits of a merger or acquisition outweigh potential adverse effects. This broad approach allows the CCI to develop and apply various theories of harm suited to the specific antitrust cases.
India has noted that the existing legal framework is flexible enough to address competition concerns in M&A deals and can be refined further to meet the complexities of digital markets. However, the problem is that India has not formally recognised nascent or killer acquisitions as a threat in any merger guidelines or any other soft laws. Instead, India has chosen a case-specific approach to M&A deals using its broad approach.
This approach raises concerns. Firstly, it leads to uncertainty for businesses and investors, and even for the CCI, who lack clear guidance on how such deals will be assessed. Secondly, a case-specific approach risks inconsistent enforcement, as similar cases may be decided differently without a structured framework. Moreover, there is no defined economic test for AAEC in the context of nascent acquisitions, making assessments subjective and potentially incomplete.
IV. How India can remove this blind spot?
1. Formal Recognition and Research Methods
India needs to formally recognize the threat posed by nascent acquisitions. The US Merger Guidelines 2023 offer a great template for the same. The Guidelines lay down a systematic framework for assessing mergers and acquisitions, ensuring uniformity in enforcement and investigative actions. They are a form of soft law that serves as authoritative guidance for competition authorities, helping align decision-making processes across cases and sectors.
Importantly, the Guidelines explicitly address threats to nascent competitors. They call for evaluating whether a merger may eliminate a nascent rival that could have evolved into a significant competitive force, especially in dynamic and innovation-driven markets. India should adopt a similar model through its own soft laws, providing regulatory clarity and formalizing the way CCI conducts investigations into nascent acquisitions.
India can furthermore discuss the theories of harm and economic tests that will be applied in assessing nascent acquisitions, ensuring that investigations are grounded in both legal and economic reasoning. In particular, studying relevant counterfactuals will be crucial to understanding how competition would evolve with and without the merger. This analysis allows the competition authority to assess whether the startup, if left independent, would have developed into a significant future competitor capable of challenging the incumbent. It also helps to determine whether the merger would dampen innovation, limit consumer choice, or entrench the market power of the acquiring firm.
For instance, the authority could compare the projected market outcomes under different scenarios: one where the merger proceeds, and another where the startup continues to grow independently or partners with other players. Such analysis would provide a forward-looking assessment that captures the strategic motivations behind acquisitions and uncovers potential harm to innovation and consumers.
New research in this regard supports utilizing the balance of harms test. The balance of harms test proposes that merger decisions consider both the likelihood and magnitude of harm. Unlike the current balance of probabilities test as used in most jurisdictions, which blocks mergers only if harm is more likely than not, this approach allows action even when harm is uncertain, if the potential damage is severe.
It’s better suited for digital markets, where nascent rivals may or may not succeed, but their loss could mean serious long-term harm. The balance of harms approach is supported by the Furman Review, the Stigler Report, and by scholars like Crémer, and Motta and Peitz, all of whom argue that the current standard results in under-enforcement and fails to capture the value of uncertain but important future competition.
However, it is important to note that competition authorities have raised concerns with the utilization of the balance of harms test. For example, the Competition and Markets Authority (CMA) refused to follow this recommendation due to practical challenges in its application, and scholars, after the CK Telecoms judgment, have noted that a balance of harms test cannot be integrated into the EU merger control lex lata.
2. Intent
What the dominant firm aims to get out of an acquisition can be a direct way to perceive whether an acquisition will be anti-competitive or not. When economic predictions are uncertain, authorities can look for strong evidence of the acquiring firm’s intent, specifically, whether the firm aimed to eliminate a competitive threat by buying the smaller company. The two main ways through which anti-competitive intent can be established are by internal documents and behaviour patterns.
Internal company documents that show the firm is worried about future competition from the target and that the acquisition is intended to remove this threat present themselves as direct evidence of anti-competitive intent against the firm and make it easier to predict its effects.
The Tidal Wave memo, written by Microsoft executive Paul Maritz in 1995, expressed Microsoft’s fear of Netscape’s web browser and the emerging internet as a competitive threat to Windows’ dominance. The memo explicitly outlined a plan to “embrace and extend” the internet, ensuring that Windows remained central by either neutralizing threats like Netscape or co-opting the technology. These documents were used as critical evidence against Microsoft in antitrust cases.
A firm’s behaviour towards acquisitions can also be significant evidence of anti-competitiveness that may warrant investigation. Serial acquisitions can be one such pattern of behaviour. It is a strategy where a dominant company repeatedly acquires multiple smaller or nascent competitors, especially in adjacent or emerging markets. Such behaviour may suggest anti-competitive intent and raises antitrust concerns.
India needs to consider intent as a significant way to establish anti-competitive effects. Whereas the study of patterns of behaviour of a firm can be incorporated in economic studies of the market or in behavioural economic analysis of the acquiring firm, discovering internal documents may require a drastic approach. For example, the Lear Report recommended that dawn raids may help out in such circumstances. By integrating relevant counterfactuals and examining the acquiring firm’s intent, India can better identify nascent acquisitions that are anti-competitive, thereby addressing a critical substantive gap in its framework.
3. Jurisdiction and Ex-post Reviews
The thresholds based on asset, turnover, and transaction value are comprehensive enough to capture major acquisition deals in the traditional market; however, the digital market warrants more consideration, for which transaction value thresholds may not be enough. India has been taking active steps to counter this, like ex-ante regulation through the proposed Digital Competition Bill (DCB).
It is important to note that the proposed DCB was withdrawn after several rounds of review and stakeholder consultation. The main concern was that its ex-ante regulatory approach could place heavy compliance burdens on start-ups and small businesses, and the Bill’s broad scope and unclear criteria for identifying “systemically significant digital enterprises” (SSDEs) raised fears that it could slow down innovation and discourage investment.
As a result, the government decided to pause and rework the framework, aiming to design a more balanced approach that fits India’s market realities. However, the proposed DCB shows that India does recognize the emerging antitrust concerns in the digital market and aims to curb them through the concept of SSDEs and ex-ante regulation.
To make sure nascent acquisitions come under the radar of CCI, the Furman Report is of the opinion that dominant big tech companies (which make the majority of the acquisitions) should notify each of their acquisitions. In India, the DCB has already defined SSDEs and will probably follow up with such a concept in further improved drafts of the DCB. Following the recommendations of the Furman Report, SSDEs can be made to notify each intended acquisition, for which the CCI can conduct a prima facie review to decide whether a deeper investigation is required or not.
A thorough review could assess various factors, such as whether an acquisition is likely to lead to market consolidation, as a single acquisition in a market with many competitors is less likely to harm competition. Although such an assessment would require the CCI to dedicate additional resources and manpower, the long-term benefits of preventing anti-competitive mergers and preserving market dynamics would substantially outweigh these initial investments.
Even after all these steps, some acquisitions may still be clouded with uncertainty. CCI can consider ex-post reviews for such nascent acquisitions. As of now, ex-post reviews must be conducted within one year of the acquisition in India, which needs to be reassessed for a longer time frame, as the real effects of an acquisition may take much more time to actualize, especially in digital markets.
Ex-post reviews have many benefits. The things that an antitrust regulator might be uncertain about may gain clarity with time. The effects of the acquisition will be more visible; a broader pattern of acquisition, like serial acquisitions, will be further visible with time; new evidence related to intent, like internal documents, may surface after the acquisition, etc.
However, ex-post reviews have their own problems. They may struggle to clearly link a merger to market harm due to changing conditions, and they undermine legal certainty by reopening deals that companies assumed were permanently cleared. Furthermore, Ex-post reviews require significant staff time, resources, and data analysis, which can strain agency capacity. The OECD Report also observed how difficult it can be to untangle already merged entities.
However, ex-post reviews still provide much more certainty than ex-ante assessments and are being utilised in many jurisdictions. There are many ways in which ex-post reviews can be improved. Being a newer concept, many countries are experimenting with it. With more research on this, India can form a clear framework for ex-post assessments and utilize it in times of uncertainty.
V. Concluding Remarks
Major jurisdictions are deliberating, researching, and implementing new ways to deal with nascent and killer acquisitions. Most countries have recognised the threats posed by such concepts, and India, as an emerging market, must take them into account.
The discussion reveals various jurisdictional and substantive pitfalls of the Indian antitrust regime that can enable nascent acquisitions to proceed with limited regulatory scrutiny. However, there are ways to effectively counter them. By formal recognition of nascent acquisitions, embracing the balance of harms approach, examining intent during investigations, following the recommendations of the Furman Report, and removing any uncertainty through ex-post assessments, India will be on its way to cover gaps in its antitrust framework.
If implemented wisely, these reforms won’t just help prevent anticompetitive effects, but they could nurture the next real challenger to the status quo. India has the opportunity to lead among emerging economies in building a competition law framework that is not just robust, but future-ready.
Student, National Law University, Assam
