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World Bank Group Finance, Competitiveness and Innovation Global Practice Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Seoul Center for Finance and Innovation november 2023 Acknowledgment This report was prepared by a team led by Graciela Miralles (Senior Economist, Markets and Tech- nology Global Unit) and Anwar Aridi (Senior Private Sector Specialist, World Bank’s Finance, Com- petitiveness and Innovation Global Practice, EAP region) which included Seidu Dauda (Economist); Rodrigo Barajas (Consultant) and Ana Belen Ruival (Consultant). Country-based consultants con- tributed to the conglomerates mapping exercise; namely Min Sung Kim (Korea), Nguyen Thanh Ha (Viet Nam), Kristina Siew Leng Fong (Malaysia), Ma. Charmaine Robles Crisostomo (Philippines), and Monthien Satimanon (Thailand). The note benefited from the guidance of the World Bank Management, Martha Licetti (Practice Manager) and Zafer Mustafaoglu (Practice Manager) and from feedback and comments provided by Seongcheol Kim (Professor, Korea University) and Tania Begazo (Senior Economist). Jason All- ford (Country Manager), Alvaro Gonzalez (Lead Economist), Luis Andres Razon Abad (Senior Pri- vate Sector Specialist), Vinh Quang Dang (Senior Private Sector Specialist), Smita Kuriakose (Lead Economist), and Toni Kristian Eliasz (Senior Digital Development Specialist) provided comments on the country notes. Earlier drafts benefited from comments provided by Xavier Cirera (Senior Economist), Tingting Juni Zhu (Senior Economist), Joo Seub Lee (Senior Economist), Kibum Kim (Private Sector Specialist), Kyeyoung Shin (Consultant), and Kyung Min Lee (Economist). This knowledge note was made possible by a grant from the Korean Ministry of Economy and Fi- nance, provided through the Seoul Center for Finance and Innovation and the WBG Korea Office. 4 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Contents Acknowledgment.............................................................................................................4 Executive Summary..........................................................................................................8 01. Introduction: Conglomerates and Market Dynamics....................................................13 02. Understanding conglomeration in digital markets: the experience of East Asia............ 19 2.1 Mapping conglomeration paths: connecting offline and digital markets.......................20 2.2 Exploring the rise of conglomerate mergers and acquisitions: a global trend................ 26 03. Dealing with conglomerate mergers: lessons learnt and the way forward.................... 37 3.1 Threats to competition from conglomerate mergers in digital markets.........................40 3.2 Selected EAP countries experience on merger control review in digital markets............50 3.3 The way forward.................................................................................................. 62 Annexes Annex A. Country reviews.......................................................................................... 67 1. Korea............................................................................................................68 2. Viet Nam....................................................................................................... 73 3. Malaysia........................................................................................................ 79 4. Philippines....................................................................................................84 5. Thailand........................................................................................................89 Annex B. Competition authorities’ review of conglomerate mergers.................................94 Annex C: Methodology to map offline and digital conglomerates in selected EA countries.. 101 Annex D: Identification of conglomerate mergers.........................................................103 Annex E: Digital Antitrust cases in EA-5 Countries.........................................................107 Bibliography................................................................................................................110 5 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges List of boxes Box 1. Conglomerate mergers in EA-5 countries.................................................................. 26 Box 2. Digital platform characteristics and risks................................................................. 39 Box 3. Efficiencies and competition concerns of tying and budling........................................ 42 Box 4. Analysis of the Uber and Grab merger in the East Asia Pacific region............................ 56 Box 5. Public Private Partnership in the EAP-5 countries...................................................... 61 Box 6. Classification of mergers and acquisitions................................................................94 Box 7. Conglomerate merger cases worldwide and competition concerns..............................98 List of figures Figure 1. Conglomeration can bring efficiencies............................................................... 16 Figure 2. …but conglomeration also brings important competition concerns.......................17 Figure 3. Mapping of Korean conglomerates 2021-2022..................................................... 24 Figure 4. Number of Conglomerate Mergers Over the Ten-Year Period, 2012-2021................. 27 Figure 5. Conglomerate and Non-Conglomerate Mergers within EA-5 Countries................... 29 Figure 6. Evolution of Conglomerate Digital Mergers , 2012-2021........................................30 Figure 7. Digital conglomerate mergers (2012-2021)..........................................................31 Figure 8. Top 25 Conglomerate Digital Targeted in the EA-5 Countries Over the 10-Year Period, 2012-2021................................................................... 32 Figure 9. Top 10 Acquiror Nations Driving Conglomerate Mergers and Conglomerate Digital Mergers in the EA-5 Countries, 2012-2021................................................. 33 Figure 10. Share of Conglomerate and Conglomerate Digital Mergers with Government-Owned Entities Involvement.......................................................... 34 Figure 11. Share of Conglomerate and Conglomerate Digital Mergers with Government-Owned Entities Involvement in the EA-5 Countries............................ 36 Figure 12. Basic elements of competition agencies’ substantive mandates............................ 52 Figure 13. Relationship Between Merger Notification Threshold Sizes and Gross Domestic Product (GDP)................................................................................. 53 Figure 14. Factors assessed in competition cases in EAP countries....................................... 59 Figure 15. Top 25 industries Targeted in Conglomerate Mergers in Korea, 2012-2021...............69 Figure 16. Top 25 industries Targeted in Conglomerate Mergers in Viet Nam Over the 10-Year Period, 2012-2021................................................................... 74 Figure 17. Mapping of Vietnamese Conglomerates 2021-2022.............................................. 77 Figure 18. Top 25 industries Targeted in Conglomerate Mergers in Malaysia over the 10-Year Period, 2012-2021................................................................... 79 6 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 19. Mapping of Malaysian Conglomerates 2021-2022................................................ 82 Figure 20. Top 25 industries Targeted in Conglomerate Mergers in The Philippines over the 10-Year Period, 2012-2021...................................................................84 Figure 21. Mapping of Philippines Conglomerates 2021-2022............................................... 87 Figure 22. Top 25 industries Targeted in Conglomerate Mergers in Thailand over the 10-Year Period, 2012-2021.................................................................. 90 Figure 23. Mapping of Thailand Conglomerates 2021-2022.................................................. 92 List of tables Table 1. Risks, policies and expected outcomes in digital environments. ................................12 Table 2. Selected examples of bundling and envelopment cases in digital markets.................. 45 Table 3.Competition laws and competition authorities in selected countries in Asia.................51 Table 4. Thresholds for requiring merger notification in EA-5 countries.................................. 54 Table 5. Digital Abuse of Dominance cases in the EA-5 countries......................................... 60 Table 6. Summary of main findings by country.................................................................... 67 Table 7. NAIC Codes and Descriptions used to identify Digital Industries.............................. 104 Table 8. Digital antitrust cases in the EA-5 cases...............................................................107 7 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Executive Summary This research tackles new and emerging challenges for competition authorities in East Asia in the context of digital markets and their efforts to curtail anti-competitive behavior and maintain mar- ket dynamism. Promoting competitive markets is essential for development as it drives productiv- ity growth, and promotes innovation and economic growth. Dynamics in the digital markets pose new risks to market competition that are forcing competition authorities to reassess the use of traditional antitrust and merger control tools. Given the big role played by conglomerates in East Asian economies, it is imperative to take a closer look at the dynamics of digital conglomerates in the region. This report: (i) explores global and regional trends in conglomeration through data analysis on conglomerate mergers and a mapping exercise of digital conglomerates in five East Asian coun- tries (Malaysia, Republic of Korea, The Philippines, Thailand and Viet Nam—EA-5);1 (ii) reviews the challenges of disciplining potential anticompetitive effects of digital conglomerates, especially through mergers; and (iii) identifies key policy recommendations to set the way forward. The main audience of this work is policymakers, competition authorities, and researchers in East Asian economies as well as other countries interested in leveraging international experiences. Many markets in East Asia are characterized by the presence of large ownership groups, the so- called conglomerates, which often have high market shares. Conglomerates can lead to improve- ments in firm efficiency, but could also raise risks of anti-competitive behavior. They can allow firms to realize gains from economies of scale and scope; mitigate constraints in access to finance through an internal capital market as well as access to essential inputs for their business models. Finally, they can help to diversify firm operations, which allows them to spread operational risks across business lines. In the case of digital markets, conglomeration can allow access to data to improve products, respond better to consumer needs, reduce transaction costs, and also ensure availability of key elements for digital business models such as digital payments, transportation and logistics. For consumers, conglomerates can reduce transaction costs and prices by enabling access to several products (or services) from a single supplier—the ‘one-stop-shopping.’ On the other hand, conglomerates can raise the risks of anticompetitive behavior, as they may engage in 1 These five countries were selected as a pilot test based on data availability and potential links with other ongoing World Bank projects. 8 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges exclusionary practices. This negative impact on competition can affect investment, innovation, and competitiveness. These risks are exacerbated in digital markets, for instance with the gather- ing and processing of data emerging as a new source of market power. Algorithms become better the more data they are fed, which can make larger digital platforms better than smaller ones. Moreover, users often converge around one or a few platforms to connect with as many fellow users as possible. A mapping exercise of conglomerates in five East Asian countries, Malaysia, Korea, The Philip- pines, Thailand and Viet Nam (EA-5), shows that, similar to global digital platform firms, digital conglomerates are expanding into adjacent markets within the digital economy. However, unlike global digital platform firms that initially focused on online search, social media, or communica- tions, EA conglomerates started with e-commerce and ride-hailing. These conglomerates have pursued vertical integration by acquiring logistics companies and partnering with local retailers, enhancing their presence in offline sectors through their digital platforms. Major regional players from China, Singapore, and Japan have a significant presence across the EA region, investing in local digital firms and digital units of offline conglomerates. State-led firms have only a limited presence in digital platform markets in Viet Nam and Malaysia, and the private sector has been the driving force in Korea, Thailand, and the Philippines. Linkages between conglomerates, both digi- tal and offline, through investments and partnerships, are prominent in most countries, with Thai- land standing out for its high number of linkages. Digital conglomerates in the region exhibit both organic expansion and substantial merger and acquisition activities to enter adjacent markets. The analysis of M&A data confirms a surge in global conglomerate mergers, particularly in the East Asia and Pacific (EAP) region, with a strong focus on digital markets. Among the EA-5 countries examined, Korea takes the lead as the driving force behind these mergers, tripling its conglom- erate digital deals and surpassing other nations in the region. However, when compared to other regions, the EA-5 countries exhibit relatively low proportions of conglomerate digital mergers. Nonetheless, Korea remains at the forefront, spearheading the majority of such mergers in the EA-5 countries. The conglomerate acquirers target various digital industries, including software publishers, custom computer programming services, motion picture and video production, elec- tronic shopping, and internet-related services. While domestic acquirers from the EA-5 countries dominate conglomerate mergers, foreign acquirers from Japan, Singapore, Hong Kong, and the United States have also made their mark. Notably, government-owned entities, particularly in Viet Nam, have shown heightened involvement in conglomerate mergers within the EAP region. Is the way we look at conglomerate mergers still valid in the context of digital markets? Data shows how conglomeration is expanding, both globally and in EAP, and mergers and acquisitions are one of the most prominent strategies. Yet, while authorities have traditionally scrutinized the compe- tition impact of horizontal and vertical mergers, conglomerate mergers have not necessarily been perceived as equally harmful as long as overlapping market presence of merging parties remained relatively trivial. However, this approach, mostly developed in and for brick-and-mortar markets, might need to be revisited in the context of digital platforms that are capable of connecting mar- kets, notably through digital ecosystems and the reuse of data, in a way that lack of market over- lap becomes a small piece in the analytical puzzle of conglomerate mergers. 9 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Conglomerate mergers in digital markets pose new challenges to competition and require a re- evaluation of the traditional approach used in brick-and-mortar markets. While conglomerate mergers were previously seen as less harmful if there was minimal market overlap, the rise of digi- tal platforms has changed the landscape. Digital platforms have the ability to bundle and tie prod- ucts, harness data, and increase the risk of collusion, posing new challenges to competition. The concentration of market power in the hands of large conglomerates can facilitate anticompetitive behavior and hinder investment and innovation, affecting overall economic growth. The unique characteristics of digital markets, such as network effects and data-driven business models, ex- acerbate these risks. Competitors outside of conglomerates may struggle to replicate bundled offerings, reducing their ability to compete. Despite these concerns, conglomerate mergers typically undergo simplified merger reviews, ben- efiting from reduced administrative burdens. These simplified procedures assume that mergers notified through this process are unlikely to raise competition concerns. Overall, authorities have generally granted more lenient treatment to conglomerate mergers, but there is recognition that they can still pose competition risks in certain circumstances. One concern is the potential fore- closure of competitors, where a dominant provider in one market leverages its position to limit competition in another market. This could be achieved by bundling different products or services, limiting switching by consumers, and increasing barriers to entry for competitors. Yet, as digital ecosystems expand and interconnectedness between complementary digital prod- ucts grows, the analysis of conglomerate mergers becomes more complex, presenting unique challenges for competition authorities. Traditional antitrust tools need to be adapted to account for the complexities of digital platforms, such as multisided markets and the control of data. De- fining markets, assessing market power, and analyzing theories of harm become more challenging in the digital context. Competition analysis in digital markets needs to consider factors beyond price. Dominant platforms, often resulting from such mergers, can hinder competition by lever- aging their data advantage, impeding the development of future competitors, and using tying and bundling strategies to reduce innovation and discourage new entrants. Competition authorities worldwide have raised concerns about these practices, initiated investi- gations and reformed their merger guidelines. The impact of conglomerate mergers on competi- tion, market foreclosure, and consumer welfare in digital markets remains an ongoing subject of scrutiny and research. The experience of competition authorities in the EA-5 countries confirms these challenges. The competition regulatory and institutional frameworks in the region have seen improvements over the past decades, although there are still notable differences among the five countries analyzed. Notably, Malaysia’s merger control system is limited to specific sectors, while other countries have economy-wide merger control. In line with international experience, Viet Nam, Thailand, Korea, and the Philippines have simplified merger procedures applicable to notification requirements for conglomerate mergers. However, the challenges of digital markets are raising new questions, especially regarding merger control. Problematic transactions are either not caught by merger thresholds, procedures to review mergers below notification thresholds are insufficient or tradi- tional analytical tools remain suboptimal when applied to digital markets. Lack of coordination among competition authorities in cases with regional effects also limits the efficiency of imposed 10 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges remedies. These challenges highlight the need for improved rules on merger notification, updated economic analysis tools, and better coordination among competition authorities in the region. Thus, while competition authorities in the EA-5 countries are working on strengthening frame- works to address the challenges of conglomerate mergers in digital markets, the complemen- tary role of ex ante regulation is also being reinforced. Malaysia proposed an amendment to the Competition Act for an economy-wide merger review framework, while the Philippines published draft guidelines for reviewing digital mergers. Korea amended its merger notification regulation to capture digital mergers with low-revenue target firms. In addition, some countries see ex ante reg- ulation as essential to prevent anticompetitive behavior, for instance Korea has prohibited tying services by BigTech and issued guidelines against self-preferencing. Thailand has also introduced regulation targeting digital platforms. These efforts highlight the growing concern of curbing po- tential anticompetitive behavior in the rapidly evolving digital landscape, including in jurisdictions with emerging competition authorities. Going forward, revisiting the approach to conglomerate mergers in digital markets is crucial to ensure competition, encourage innovation, and protect consumers. In this context, the analysis of conglomerate mergers involving digital operators is evolving as regulators seek new tools to address potential anticompetitive effects. Lack of overlapping activities is no longer sufficient to rule out problematic operations, necessitating stricter scrutiny through full reviews. Understand- ing data value and network effects is crucial for assessing the likely impact of digital mergers. Traditional merger review procedures and tools need to be reshuffled to screen for problematic digital conglomerate mergers and address likely anticompetitive effects. Reforms should include broader mandates for competition authorities, reinforced notification obligations, simplified in- terim measures, and the consideration of behavioral remedies. Preemptive competitive measures may be necessary to preserve competition in fast-paced digital markets. Depending on specific market characteristics and business models, ex ante regulation and sector-specific frameworks would be needed to complement antitrust measures. These frameworks need to be designed to address specific competition risks in the country context, set obligations that are proportionate and consider institutional capacity for enforcement, to avoid unintended negative effects on users and the development of the sector. Stronger cooperation among market institutions is also crucial for addressing the challenges of digital conglomerates. 11 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Table 1. Risks, policies and expected outcomes in digital environments. Risk  Policy recommendation Potential Outcome  Simplified analysis of Identify categories of digital conglomerate mergers limits conglomerate mergers that the ability of competition may undergo a full merger authorities to identify negative review and submit them to market effects of digital full competition scrutiny. conglomerate mergers. Limited analysis of key Reform analytical tools to features of digital markets, adapt them to specificities including value of data of digital markets. and network effects. Problematic digital (conglomerate) Traditional merger review Review merger notification rules mergers submitted to procedures and tools inadequate (e.g., pre-merger notification competition scrutiny. to address digital mergers. thresholds, obligation for important digital providers), Risk associated with digital streamline interim measures, conglomerate mergers identified and better design remedies. and, if necessary, tackled through well designed remedies. Ability of dominant players Reinforce or introduce targeted strengthened through/resulting and proportionate ex ante/ Risks of market foreclosure from a merger to leverage their sector- specific frameworks to through digital ecosystems market power in adjacent/ prevent abuses of dominance limited/prevented. non-adjacent markets and anticompetitive through digital ecosystems coordinated effects. Reinforced regulation and institutional frameworks Difficulties to address, Increase coordination among for digital markets. cohesively, the multidimensional market institutions to foster better risks of digital markets dynamics in digital markets. Difficulties to coordinate Reinforce regional cooperation solutions in multijurisdictional mechanisms of competition notifications authorities following the examples of networks such as the European Competition Network (ECN). Source: Authors own elaboration 12 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 01 Introduction: Conglomerates and Market Dynamics 13 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 01. Introduction: Conglomerates and Market Dynamics Competition increases productivity boosting innovation and economic growth. Competition fosters cost reductions, innovation and promotes productivity growth.2 Two mechanisms con- tribute to this result. First, competition shifts market share toward more efficient producers; sec- ond, it induces firms to become more efficient in order to survive.3 Empirical evidence shows that the degree of competition in the domestic market is a key determinant of international compet- itiveness.4 Firms typically acquire many of their inputs—transport, energy, telecommunications and financial services—in local markets. If these upstream markets lack competition, goods and services needed for production are not priced competitively. As a result, firms may be less com- petitive than their foreign rivals and domestic GDP growth may suffer. This paper reviews global and regional trends on conglomeration in digital markets, especial- ly through mergers and acquisitions. In recent years, the landscape of business consolidation has undergone a transformative shift, driven by the convergence of digital innovation and tradi- tional commerce. This paper delves into the intriguing trends surrounding conglomeration in both digital and brick-and-mortar spheres, exploring their implications on a regional and global scale. With diverse models intertwining digital and traditional conglomerates, the strategies employed for consolidation have showcased remarkable diversity. However, at the forefront emerges the prominent strategy of conglomerate mergers, which amalgamate distinct business dimensions under a single corporate umbrella. Thus, this study investigates the readiness of competition au- thorities and sector-specific regulators to effectively address the intricate challenges posed by such mergers. In this context, policy reforms emerge as a focal point, aimed at bolstering regula- tory frameworks to foster fair competition, innovation, and consumer protection in an era of rapid conglomerate digitalization. Many markets in East Asia (EA) are characterized by the presence of large ownership groups with persistently high market shares. Many of these large firms are connected through con- glomerate networks. A conglomerate is a multisector company with a set of business entities 2 See generally Aghion, P., & Griffith, R. (2005). Competition and Growth: Reconciling Theory and Evidence. MIT Press. Available at https://mitpress.mit.edu/9780262512022/competition-and-growth/ 3 See generally Kitzmuller, M., and Martinez Licetti M.. (2012). Competition Policy: Encouraging Thriving Markets for Development. World Bank. View Point. Public Policy for the Private Sector. 4 See generally Goodwin, Tanja, and Martha Denisse Pierola. (2015) Export Competitiveness: Why Domestic Market Competition Matters. Viewpoint: Public Policy for the Private Sector. World Bank Washington DC. 14 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges participating in different product markets, whether potentially connected or not, all under one corporate group. In addition, (highly) concentrated market structures paired with little dynamic variations in market shares have traditionally characterized many sectors in the region.5 These trends are being echoed in new markets, notably digital.6 Conglomeration enables firms to be more efficient in their operations (Figure 1), but paired with higher market concentration in key markets of the economy can affect competition dy- namics, competitiveness of firms, and economic growth. Although market concentration may naturally result from market characteristics, it may also raise the risks of anticompetitive behavior, especially in the context of large economic conglomerates holding dominant positions in key mar- kets across sectors and maintaining regular multimarket contacts.7 The main concern is that con- glomerates may engage in exclusionary practices, reducing competition dynamics.8 This lessening of competition can affect levels of investment, innovation, and competitiveness as firms that do not face the threat of entry do not have a strong urge to invest and innovate.9 Empirical evidence shows that firms make fewer investments in service quality when there is high multimarket con- tact. Such investments may induce rivals to respond with price cuts or service improvements in other markets in which the firms compete.10 Lower investment harms the aggregate productivity level and growth, which in turn has adverse implications for long-run economic growth. 5 See Claessens, S., Djankov, S., & Lang, L. H. P. (2000). The separation of ownership and control in East Asian Corporations. Journal of Financial Economics, 58(1–2), 81–112. Available at https://doi.org/10.1016/S0304-405X(00)00067-2 6 See generally Deloitte. (2016). Digital Era for ASEAN Conglomerates Hype or Reality? Available at https://www2.deloitte. com/content/dam/Deloitte/sg/Documents/strategy/sea-strategy-digital-era-for-asean-conglomerates-noexp.pdf; Shek, C. (2015). The new empire builders: China’s digital conglomerates—Ckgsb. CKGSB Knowledge. Available at https://english. ckgsb.edu.cn/knowledges/the-new-empire-builders-chinas-digital-conglomerates/ 7 As multimarket contact between conglomerates increases and firms recognize their competitive interdependence, risks increase of each firm having an incentive to avoid entering a new market that is currently occupied by firms it already meets in other markets to discourage potential multimarket retaliation and to respect any tacit collusive agreements. Conglomerates that compete with each other across multiple markets might have incentives to lower the degree of competition (especially in prices), eliminating the risk of retaliation in other markets. Multimarket competition can also have impacts on quality of products and services. Empirical evidence has shown that firms make fewer investments in service quality when there is high multimarket contact because such investments may induce rivals to respond with price cuts or service improvements in other markets in which the firms compete. See generally Prince, J. T., & Simon, D. H. (2009). Multimarket contact and service quality: Evidence from on-time performance in the u. S. Airline industry. Academy of Management Journal, 52(2), 336–354; Baum, J. A. C., & Korn, H. J. (1999). Dynamics of dyadic competitive interaction. Strategic Management Journal, 20(3), 251–278. 8 See at European Commission, Directorate-General for Competition, Church, J. (2006). The Impact of Vertical and Conglomerate Mergers on Competition, Publications Office. European Union. 9 See generally Gutiérrez, G., & Philippon, T. (2017). Declining Competition and Investment in the US. National Bureau of Economic Research. Available at https://doi.org/10.3386/w23583 10 See generally Prince and Simon. 2009 supra note 7. 15 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 1. Conglomeration can bring efficiencies... Reduction of the average unit cost of Economies of scale Teece (1980, 1982) Farrell production by increasing output and combining and scope and Shapiro (2001) the production of different products. Conglomerate mergers can give rise to Bishop, Lofaro, Rosati, Countervailing buyer power increased buyer power where the merging Young (2005) parties employ the same input. Tying/bundling → Elimination of Cournot effect (similar to double Nalebuff (2003) Bishop, Increasing Pricing Efficiency marginalization) on complementary products Lofaro, Rosati, Youn (2005) Overcoming institutional India: Intragroup transactions, eliminate the need Khanna and Yafeh (2007) issues in developing for interactions with external parties, minimizing Khanna and Palepu (2000) countries reliance on legal and judicial systems. Conglomerate mergers create "one-stop Reduction in Bishop, Lofaro, Rosati, shopping" advantages for customers saving the transaction costs Young (2005) costs associated with multiple transactions. Diversify risk, making firms less financially Risk sharing vulnerable to possible downturns in Lipczynski and Wilson (2001) one of their lines of business. Access to capital East Asia: Conglomerate sources of funding Stijn, Fan, and Lang are important in countries with less (2006) Almieda and sophisticated capital markets or not liquid. Wolfenzon (2006) Source: Authors based on literature review. In addition, conglomeration also increases risks of anticompetitive practices, especially abuses of dominance to exclude smaller rivals from the market (Figure 2). An example is ‘ty- ing and bundling’ practices, in which consumers or suppliers are forced to obtain other goods or services provided by the conglomerate to access certain products/services (Box 4).11 Risks of collusion (tacit and explicit) can also increase when large conglomerates compete in multiple 11 See generally Church, J. (2006) supra note 8; Carlton, D., & Waldman, M. (2002). The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries. RAND Journal of Economics 33: 194–220; Kuhn, K.-U., Stillman, R., & Caffarra, C. (2004). Economic Theories of Bundling and Their Policy Implications in Abuse Cases: An Assessment in Light of the Microsoft Case. SSRN Electronic Journal. Available at https://doi.org/10.2139/ssrn.618589. 16 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges markets.12 Empirical evidence from the EA region has found that firms belonging to ownership net- works tend to have higher market power as measured by markups, especially in services.13 Figure 2. ...but conglomeration also brings important competition concerns. Tying and A dominant provider of a product or service could leverage its dominance in one Church (2004, 2008) bundling → direct market to increase sales in another in which the firm is not dominant by conditioning Nalebuff (2003) foreclosure the sales of the first one to the purchasing the non-dominant products Whinston (1990) Tying and bundling New competitors in niche markets may find it hard to compete with the digital platform Tirole → Barriers to entry that can bundle different services and products in independent markets. Through (2019) and growth conglomerate-merger-strategy digital platforms can prevent a start-up from growing. Tying and bundling Tying after a merger could mean that an entrant must provide aII the products in the bundle to Bourreau, → Less innovation compete. Innovative entrants with standalone products/service may be excluded. → Merged entitiy Streel (2019) faces less competitive pressures in both markets, it may have fewer incentives to innovate. Neven (2005) Lower incentives Acquisitions of entrant firms by an incumbent can deter innovation and entry in the digital Kamepalli et to entry and platform industry. In the three years following an acquisition by Google/Facebook investments al (2021) investments in that sector drop by more than 40% and the number of deals falls by more than 20%. Kill zones Segments of the market in which start-ups are present but cannot grow since their Schechter offerings are similar to the portfolios of the large digital platform conglomerates and (2018) which are therefore not worth operating or investing in, as the defeat is guaranteed. Network effects Digital conglomerate mergers due to network effects increase risks of Van den Boom and leading to foreclosure even when services/products not complementary. Samranchit (2022) foreclosure OECD (2020) Access to data Combination of different datasets or data processing capabilities can provide the merged entity Motta, Peitz (2021) leading to with an advantage over competitors to improve on products in a way that cannot be matched. Lim (2020) Prüfer, foreclosure Schottmuller (2017) Tacit collusion Conglomerates that compete with each other across multiple markets Baum and Korn might have incentives to lower the degree of competition (especially in (1999) Kang et prices), eliminating the risk of retaliation in other markets al. (2009). Source: Authors based on literature review 12 See generally Bernheim, B. D., and M. D. Whinston. (1990). Multimarket Contact and Collusive Behavior. RAND Journal of Economics 21: 1–26; Yu, T., & Cannella, A. A. (2007). Rivalry between multinational enterprises: An Event History Approach. Academy of Management Journal, 50(3), 665–686. Available at https://doi.org/10.5465/amj.2007.25527425; Green, E. J., and R. H. Porter. (1984). Non-cooperative Collusion under Imperfect Price Information. Econometrica 52: 87–100; Evans, W.N., and I. N. Kessides. (1994). Living by the ‘Golden Rule’: Multimarket Contact in the U.S. Airline Industry. Quarterly Journal of Economics 109: 341–366. 13 See generally Apaitan, T., Banternghansa, C., Paweenawat, A., & Samphantharak, K. (2020). Common ownership, domestic competition, and export: Evidence from Thailand. PIER Discussion Papers 140, Puey Ungphakorn Institute for Economic Research, revised June 2020. Available at: https://ideas.repec.org/p/pui/dpaper/140.html 17 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges These risks are exacerbated in digital markets. Digital platforms present risks to competition due to network externalities and strong returns to scale, especially in the absence of multihom- ing and data interoperability (Box 1).14 Competitors that are not part of a digital conglomerate would not be able to replicate bundle or tying practices, diminishing their chances of competing in the market. This can be especially true for larger networks with higher levels of diversification of firms operating in the same industry.15 Platform-based and data-driven business models, mul- tisided markets, network effects, and economies of scale in digital platform markets can increase the risks around market power, making competition issues more prevalent and requiring a more complex assessment of competition than in traditional markets. For example, the ascent of digital platform firms raises three additional issues related to market power. First, users tend to converge around one or few platforms to connect with as many fellow users as possible. Second, conglom- erates with multiple platforms, networks, and services may exclude competitors in some of their services. Third, the gathering and processing of data gives rise to new sources of market power.16 Algorithms improve the more data they are fed, which gives larger platforms a competitive advan- tage over smaller ones. These characteristics of digital markets gave rise to new types of abuse of market dominance in digital markets.17 While authorities have traditionally scrutinized the competition impact of horizontal and vertical mergers (see Annex B Box 5), conglomerate mergers have not necessarily been perceived as equal- ly harmful as long as overlapping market presence of merging parties remained relatively trivial. However, this approach, mostly developed in and for brick-and-mortar markets, might need to be revisited in the context of digital platforms that are capable of connecting markets, notably through digital ecosystems, in a way that lack of market overlap becomes a small piece in the an- alytical puzzle of conglomerate mergers. Thus, some revision is necessary of traditional thinking on how to deal with steps that would increase economic concentration. The paper focuses on East Asia, a region where authorities have traditionally struggled with the impact of conglomeration. 14 See generally Crémer, J., Montjoye, Y.-A. de, & Schweitzer, H. (2019). Competition policy for the digital era. Publications Office of the European Union, available at https://data.europa.eu/doi/10.2763/407537; 15 Idem 16 See generally World Bank. 2021. World Development Report (WDR) 2021: Data for Better Lives. Washington, DC: World Bank. 17 Idem 18 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 02 Understanding Conglomeration in Digital Markets: The Experience of East Asia 19 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 02. Understanding conglomeration in digital markets: the experience of East Asia 2.1 Mapping conglomeration paths: connecting offline and digital markets Conglomeration trends, pervasive in the region, are also present in digital markets yet offline conglomerates are not leading the way A mapping exercise of conglomerate structures involving digital platforms in five EA coun- tries confirms the expansion of conglomeration from offline markets to digital ones. This note builds on a 2021- 2022 systematic mapping18 of the main domestic and regional19 conglomerates with presence in digital markets in Republic of Korea, Thailand, Philippines, Malaysia, and Viet Nam. The first phase of the research identified both originally offline and originally digital con- glomerates,20 whether public21 or private, and their presence in different sectors/markets. The second phase focused mainly on private digital conglomerates. Understanding the strategies pur- sued by offline conglomerates to enter digital markets as well as those of online conglomerates to expand to additional markets, either digital or offline, was also part of this exercise. These strate- gies included mergers and acquisitions (M&A), e.g. start-up acquisitions or JVs; investments; and the development of new business segments within the conglomerate. The findings of this research are explored throughout the note. Details on the methodology are provided in Annex C. Yet, offline conglomerates themselves are not systematically entering into digital markets through their own digital platforms in all five countries. Many large business groups were left out of the mapping due to lack of digital platform presence. For example, in Korea, only 11 out of the 71 business units with assets over 3 billion dollars designated as large business groups by the Korea Fair Trade Commission (KFTC), and subject to special corporate disclosure have significant 18 This mapping exercise was conducted in 2021-2021. Market changes occurring after this period may not be reflected in this paper. 19 Domestic conglomerates are those that originated in each country analyzed. Regional conglomerates include those large business groups with important presence in markets, especially digital platform markets, across several countries in the EA region. Digital conglomerates that are worldwide in nature, such as Google or Meta, were not the focus of the study, so were not included in the mapping. 20 ‘Originally offline’ conglomerates include those business groups which came into being and developed in traditional offline sectors in the economy. ‘Originally digital’ conglomerates are firms that have a digital platform as their main and original business unit. 21 Public conglomerates refer to those with significant state presence including those fully owned and controlled by the government and those in which governments have invested in, for example through government investment funds. 20 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges presence in digital platform markets. In Viet Nam, only local government-backed conglomerates with presence in telecom have been entering into digital markets. Other large offline conglomer- ates have digitized part of their products to help their offline main businesses without developing relevant presence in digital platform markets. In Malaysia, family-owned entities, whether listed or unlisted, have not gotten involved in digital platforms or related businesses. The two largest offline Thai conglomerates stand out as the ones with the highest level of involvement and diversi- fication in digital platform sectors, among offline conglomerates in the region. E-commerce and Fintech are the main gateway sectors for offline conglomerates into digital platform markets. Offline conglomerates participating in retail markets have been the most active in develop- ing digital platforms. On the one hand, e-commerce and Fintech, through digital payments and e-wallets, have been key avenues for private offline conglomerates to enter the digital sphere. For instance, this is the case for private offline conglomerates that initially entered digital markets through e-commerce and later expanded to offering digital wallets and e-payment systems. On the other hand, there is a low level of expansion of offline conglomerates to any other digital mar- kets, including regulated sectors such as health or education. Entry through digital platforms into health sectors has been observed only in the Philippines and Thailand, and it remains insignificant. Private regional and local firms have led the growth of the digital platform eco- system across all five countries In spite of the prominent direct participation of the state in markets across the region, pres- ence of government-linked companies in digital platform markets remains significant only in Malaysia and Viet Nam. In Viet Nam, SOEs have entered digital platform markets in Fintech and e-commerce. In Malaysia, there is a larger diversity of state involvement in digital sectors through government-led investment companies. In both countries, government-led conglomer- ates entering digital platform markets had their core business in the telecommunication sector, yet their digital platforms have not acquired dominant market positions. In other words, they have not leveraged their market power in telecommunication services within digital markets. In Korea, Thailand, and the Philippines, the development of digital platform markets has been completely led by the private sector. Following global trends, digital conglomerates in the region are expanding to- wards vertically related and adjacent markets, both digital and offline Asian digital conglomerates with a regional dimension have significant and diversified pres- ence in digital platform markets. As in the case of Big Tech like Google, Meta, and Amazon, large regional players started with one core digital platform business, mostly e-commerce and ride hailing except for Korea, and expanded to related markets/sectors. For instance, e-commerce platforms have launched different retail business-to-consumer (B2C) and customer-to-customer (C2C) platforms for sale of products in diverse categories and price segments. E-commerce plat- forms have also developed business units in Fintech, delivery, and, in certain cases, gaming and streaming services. Large ride-hailing platforms are looking to develop digital ecosystems or ‘su- perapps’ in which they can offer adjacent services such as electronic payment systems, food deliv- 21 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges ery, e-commerce, and even social media and communications. The Japanese messaging applica- tion Line, is also present in several countries looking to act as a ‘superapp’ with platforms services adjacent to its core over-the-top (OTT) communications platform. Moreover, regional digital plat- form conglomerates have acquired, invested in, or partnered with brick-and-mortar firms to ver- tically integrate their digital platform businesses. Regional e-commerce platforms have acquired logistics companies in the countries where they operate to offer integrated services to sellers and consumers. Regional e-commerce platforms have also partnered with local retailers to enhance their penetration in the offline retail sector. Similar to Amazon’s acquisition of Whole Foods in 2017 to enter the offline grocery business, there is evidence of regional digital conglomerate platforms acquiring brick and mortar businesses such as supermarket chains to vertically integrate them into the e-commerce businesses.22 This kind of vertical integration allows platforms to offer retail products through their own e-commerce platform, paid through their own e-wallets and other Fintech services, and delivered to final consumers using their own logistics services. Expect for in Korea, large regional digital conglomerates from China, Singapore, and Japan have a wide presence, either direct or indirect through investments and other links with local or regional firms The digital platforms with the highest level of conglomeration have originated outside the countries analyzed and continue expanding across the region. Except for Korea, large players in e-commerce with origins in Singapore, are present in all countries studied.23 The presence of these conglomerates varies from country to country regarding their platform services and market positions.24 Similarly, ride hailing platforms with Singaporean origins are also present in Malaysia, Philippines, Viet Nam and Thailand with a diverse offer of digital platform services (that is, ride hailing, digital payments, food delivery, and e-commerce). Large regional digital conglomerates have invested in local digital firms and digital business units of offline conglomerates across the region. This is the case for the two main digital con- glomerates in China. Chinese e-commerce conglomerates have presence in all the five countries but Korea. At the same time, these conglomerates have important participation in both the offline and online sectors, investing in local firms involved in digital platform services such as Fintech, e-commerce, ride hailing, gaming, streaming and delivery, and in firms participating in related markets such as logistics or content creation. One of the main offline Japanese conglomerates has regional presence through strong investments in regional platforms,25 participating in the ride-hailing markets of all countries analyzed except for Korea, while also having ties to regional digital communications conglomerates. 22 See generally Grab SG. (January 31, 2022). Grab Completes Acquisition of Stake in Jaya Grocer. Grab Press Center. Available at https://www.grab.com/sg/press/others/grab-completes-acquisition-of-stake-in-jaya-grocer/. 23 Although Shopee also has users in Korea as sellers for their e-commerce platform in the rest of the region: https://shopee. kr/ 24 Based on experts’ knowledge, as this study did not analyze data on sales, number of users, or market shares. 25 See generally Russell, J. (2016, September 20). Uber Rival Grab Raises $750M Led by SoftBank at a $3B Valuation. Available at https://techcrunch.com/2016/09/19/grab-raises-750-million/; See generally Chen, L. Y., & Lee, Y. (2017, March 24).). Uber Rival Grab Raising $1.5 billion in New Funding Round. Bloomberg.com. Available at https://www.bloomberg.com/ news/articles/2017-03-24/uber-rival-grab-said-raising-1-5-billion-in-new-funding-round. 22 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Links between conglomerates, both digital and offline, remain significant Investments, partnerships, and JVs have been used to establish ample corporate links among conglomerates, often competing in the same digital platform markets. These links tend to materialize through large digital conglomerates with regional presence. These conglomerates par- ticipate in digital markets directly through their main digital platforms but also invest in or enter partnerships with local digital platforms and local offline conglomerates looking to develop into digital sectors. The extent and scope of these links varies by country. Within the sample, Malaysia has the fewest links among private conglomerates participating in digital platform markets and the most links among SOEs, as they are backed by the same sovereign wealth funds. In Viet Nam, links are observed not only among government-backed entities, but also among large private digital conglomerates. Thailand stands out due to extensive links between conglomerates in digital and offline markets. Mergers and acquisitions have been critical for digital platforms to expand into related markets A variety of strategies underpin the expansion of digital conglomerates into connected and non-connected markets. Sometimes expansion seeks vertical integration of the core digital plat- form with a new business segment, e.g. e-commerce platforms or ride-hailing apps developing payment systems and e-wallets for customers to pay for their services. However, digital conglomerates have mainly expanded through mergers and acquisitions both in online and offline markets. In Korea, the largest digital conglomerates 26 27 have acquired a non-trivial number of firms, many active in offline markets, either to solidify their vertical inte- gration strategies, e.g. through acquisitions of content developers28 both in Korea and abroad, or to enter into digital markets unrelated to their core business such as car sharing. Chinese digital conglomerates have also acquired many local firms both in digital markets, e.g. e-wallets to be incorporated into their digital ecosystem, as well as offline companies involved in retail or even banking services. 26 Between 2020 and 2022, Kakao acquired firms in webtoon and web novel markets in North America, Europe, and Japan. For example, Kakao Entertainment acquired two leading storytelling platforms based in the United States., Tapas Media and Radish Media, in May 2021. Kakao Entertainment also took over Wuxiaworld, the US-based Asian fantasy novel platform in December 2021. As part of its global expansion strategy, it also acquired Kiwi Media Company, a multilingual translation, subtitling, and localization company in October 2021. 27 To combine HYBE’s long-accumulated experience in the entertainment scene and Naver’s focus on technological strengths, Naver’s streaming platform (V Live) and HYBE’s fan community platform (Weverse) merged in 2021. To expand competitiveness in webtoons, in 2021, Naver Webtoon acquired Munpia, a large web novel platform provider in Korea, and LOCUS, a video technology company, to accelerate its moves to turn webtoons into video products and expand metaverse businesses. Also, in January 2021, Naver acquired Wattpad, the world’s leading social storytelling platform. 28 Entertainment content such as movies, tv shows, news, comics, among others. 23 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Gaming Nexon Figure 3. Mapping of Korean conglomerates 2021-2022 Legend Social media/Communication construction telecommunication streaming search Kakao Talk Xi SK Telecom Coupang Play Naver Entertainment Search Finance/Fintech/Payments SK Broadband Finance/Fintech/Payments E-commerce E-commerce Daum GS Pay e-commerce Coupay Naver Shopping Search Online Advertising/Marketing Retail 11st tourism/accommodation Kream Kakao Business GS25 energy Advertising/Marketing Ddnayo social media/communication Gaming e-commerce SK Innovation Transportation/Mobility e-commerce Naver Blog Kakao Games Ten by Ten chemistry Coupang Naver Cafe Tourism/Accomodation Transportation/Mobility GS Shop SK Chemicals software/technology, e-commerce finance/fintech/payments, real-estate, (krfam, naver z) logistics/delivery (gs retail) online a Energy Kakao T Energy hardware Coupang Eats Band Telecommunication Finance/Fintech/Payments GS Energy SK Hynix Line dver Kakao Bank Coupang Fulfillment Center Chemistry software/technology online advertising/marketing tisin Streaming Kakao Pay GS Global One Store Naver Search Advertisment g/m Logistics/Delivery ark Leisure GS Caltex streaming Naver Display Advertisment eti Social media/Communication Friends Screen Wavve ng logistics/delivery entertainment Online Advertising/Marketing Entertainment GS Networks transportation/mobility (kakao mobility) Zepeto Kakao Webtoon TMAP Gaming Wooridongnae delivery (o ne Naver Webtoon Logos Film so ft st or Food wa e) software/technology r BH Entertainment ) e/ te Naver Cloud Chemistry com ch tele no E-commerce (s k lo Finance/Fintech/Payments Construction gy Kakao Shopping Naver Pay Media Kakao Gift Gaming Retail (kakao Line Games Makers games) Finance/Fintech/Payments retail streaming Line Store Software/Technology Melon ce mer com Leisure learning y, e- lo olog so gis echn (JTBC Yanadoo ft are/ t tic Learning wa softw de y) ) re/ s/ liv pa tec er ao hno y, logy ak Hardware tr (k an spo e-commerce rta Controller/Owner/Partial owner tio Lotte On n/m obil (ka ity Digital platform kao Lotte Homeshopping gy gam Investments / alliances / partnerships etc. Gaming olo Entertainment logistics/delivery (tving) es) chn Co-investments Lotte Global Logis / te (jtbc) re Subsidiaries retail wa Lotte Department Store t sof ) Lotte Mart Gaming (CJ ENM Himart a m in g Netmarble food n t, G me streaming Starbucks food a in food e rt Lotte Confectionary nt Tourism/Accomodation CJ Cheiljedang Tving retail e Phoenix entertainment DIA TV Shinsegae Department Store Lotte Chilsung Tourism/Accomodation media tvN E-Mart retail Joongang Ilbo OCN Lotte Hotel Olive Young e-commerce advertising/marketing JTBC Mnet logistics/delivery SSG.COM Daehong Communications finance/fintech/payments CJ Logistics Shinsegae TV Shopping MAMA transportation/mobility Chat online advertising/marketing transportation/mobility KCON Green Car entertainment Mezzomedia Seoul Express Bus Terminal Jcontentree Studio Dragon entertainment e-commerce Tourism/Accomodation Lotte Cinema Megabox CGV CJ Onstyle Chosun Hotel 24 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Local offline conglomerates have also used acquisitions to enter digital markets, particularly through e-commerce platforms in Korea, Thailand, and the Philippines. For example, one of the largest conglomerate groups in the Philippines acquired control in a fashion-related e-com- merce platform.29 One of the largest retail conglomerates in Korea acquired eBay Korea, allowing them to create an e-commerce service that offers a wide variety of services, from groceries to general retail.30 Finally, large mergers between competitors have severely impacted digital markets in the regions, especially those involving worldwide digital platforms. The 2018 acquisition of the regional operations of the largest ride hailing platform in the world by its largest regional compet- itor (Uber/Grab case) had a significant impact in several domestic markets that were left with only one market player.31 Similarly, the acquisition of a large food delivery platform in Korea by Delivery Hero in 202032 significantly impacted market dynamics. Other horizontal mergers were identified at the country level, for instance, between small e-commerce platforms in Viet Nam.33 29 See generally Dumlao-Abadilla, Doris. (September 2, 2017). Ayala Group Completes Acquisition of 49% Stake in Zalora. Business Inquirer. https://business.inquirer.net/236131/ayala-group-completes-acquisition-49-stake-zalora. 30 See generally Jennings, R. (July 2, 2021). Shinsegae Acquires eBay Korea in $3 Billion Deal as E-Commerce Booms. Forbes. . Available at https://www.forbes.com/sites/ralphjennings/2021/07/02/shinsegae-acquires-ebay-korea-in-3-billion-deal-as- e-commerce-booms/. 31 See generally Grab SG. (March 26, 2018). Grab Merges with Uber in Southeast Asia. Grab Press Center. https://www.grab. com/sg/press/business/grab-merges-with-uber-in-southeast-asia/.. 32 See generally Park, J., & Kim, K. (2020, December 28). Delivery Hero Welcomes Baemin, Seeks New Home for Yogiyo. KED Global. Available at https://www.kedglobal.com/m-as/newsView/ked202012280006. 33 See generally Crunchbase. (2014, July 7). Sendo Acquires 123mua.vn - 2014-07-07 - Crunchbase Acquisition Profile. Accessed May 25, 2023. Available at https://www.crunchbase.com/acquisition/sendo-acquires-123mua--34337a4b. 25 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 2.2 Exploring the rise of conglomerate mergers and acquisitions: a global trend An analysis of M&A data confirms an increase of conglomerate mergers in the last decade both at the global level and in the EAP region, yet significant differences persist among the five countries reviewed (EA-5). An analysis of Refinitiv data reveals that amidst an increasing number of conglomerate mergers and acquisitions34 at the global level (Figure 4 (a) in Box 3), close to 30 percent of all conglomerate mergers between 2012 and 2021 targeted companies in the EAP region (Figure 4 (b)). However, this trend is mainly driven by Korea where conglomerate mergers doubled over the period analyzed while declining in the other four countries under review (EAP-4) by about 56 percent. The number of conglomerate mergers in Korea is significantly higher than the averages in other regions, except the North America region (i.e., mainly United States and Canada). Yet, the average number of conglomerate mergers in the EAP-4 countries is higher than the averages in South Asia (SAR), East and Central Asia (ECA), Latin America and the Caribbean (LAC), Middle East and North Africa (MENA), and Sub-Sharan Africa (SSA) regions. The EAP-4 countries average is lower than the averages in the other EAP countries outside the EA-5 (hereafter referred to as EAP-Other) (Figure 4 (c)). Box 1. Conglomerate mergers in EA-5 countries The review starts with a global overview analyzing trends in the number of conglomerate merg- ers and comparing the EA-5 countries with EA-Other. The study identifies conglomerate mergers following the methodology outlined in Annex C. Once these are identified, it zooms into conglom- erate digital mergers in the EA-5 countries, highlighting which digital industries are among the top ones targeted by conglomerate acquirors. Conglomerate digital mergers involve those target companies in selected digital related industries that are acquired by companies in other indus- tries whose products are not in the digital industries and are also not inputs or outputs of the digital industries. The identification of conglomerate digital mergers was developed through a list of NAIC codes related to digital industries. It is important to note that list may not be exhaustive of digital industries and may contain codes related to the broader digital economy. 34 According to the European commission, “conglomerate mergers are mergers between firms that are in a relationship which are neither horizontal (as competitors in the same relevant market) nor vertical (suppliers or customers).” See European Commission (2008). Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the Control of Concentration between Undertakings. European Union. (2008/C 265/07) at. Para. 5. 26 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 4. Number of Conglomerate Mergers Over the Ten-Year Period, 2012-2021. a. Global ECA (6%), 13126 Western Europe (28%), 58991 Non- Conglomerate conglomerate merger EAP (29%), 62101 (49%), 206,656 (51%),210,907 LAC (3%), 5557 MENA (2%), 3224 NAR (28%), 59726 SAR (3%), 6045 SSA (1%), 2137 b. By Region 30000 25000 20000 15000 10000 5000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 EAP NAR Western Europe ECA SAR LAC MENA SSA 27 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges c. Average across regions 3000 2500 2000 1500 1000 500 0 NAR Korea EAP- Western EAP-4 SAR ECA LAC MENA SSA Other Europe 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 The EAP-4 countries are Malaysia, Philippines, Thailand, and Viet Nam. NAR = North America, SAR = South Asia region. ECA = East and Central Asia region, LAC = Latin America and the Caribbean region, MENA = Middle East and North Africa region, SSA = Sub-Sharan Africa region, and EAP-Other = East Asia and the Pacific region excluding the EA-5 countries. The EAP-Other coun- tries with M&A data include Cambodia, China, Indonesia, Kiribati, Lao PDR, Mongolia, Myanmar, Papua New Guinea, Singapore, Timor-Leste, Macao SAR (China), Hong Kong SAR (China), Taiwan (China), Fiji, French Polynesia, Marshall Islands, Federated States of Micronesia, New Caledonia, New Zealand, Northern Mariana Islands, Samoa, Solomon Islands, Tonga, and Vanuatu. Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). Conglomerate mergers remain more prominent in EA-5 countries than horizontal and vertical deals combined, with Korea significantly shaping these results. Korea accounts for close to two-thirds of all conglomerate mergers that occurred in the EA-5 countries over the 2012-2021 period, with only 35% of all deals being non-conglomerate. Viet Nam and Malaysia are a distant second and third, accounting for about 15 percent and 14 percent of conglomerate mergers (Figure 5 (a)). While the number of conglomerate mergers in Korea doubled over the period, they declined in Malaysia, Philippines, Thailand, and Viet Nam between 2012 and 2021 (Figure 5 (b)). 28 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 5. Conglomerate and Non-Conglomerate Mergers within EA-5 Countries a. Total Conglomerate and Non- Conglomerate Mergers Between 2012-2021 Philippines (3%) Thailand (5%) Malaysia (14%) Viet Nam (15%) 7,191 13,490 Non- Conglomerate conglomerate (65%) (35%) Korea, Rep. (63%) b. Conglomerate Mergers by Year 1200 1000 800 600 400 200 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Korea, Rep. Malaysia Philippines Thailand Viet Nam Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 29 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges These trends are even more pronounced when considering conglomerate digital mergers only, a corporate strategy that has exploded over the past decade across regions including EAP. The number of conglomerate digital mergers in Korea tripled between 2012-2021, yet this rise was smaller than in the EAP-Other and the MENA region (Figure 6). The proportion of conglomer- ate digital mergers in total conglomerate mergers also rose from about 9 percent in 2012 to about 17 percent in 2021 in Korea and from about 5 percent to 16 percent in the other four EAP countries over the same period. The proportions were, however, lower in the EA-5 countries than in the other regions, such as LAC and MENA. Figure 6. Evolution of Conglomerate Digital Mergers , 2012-2021 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 Korea EAP-4 EAP-Other ECA Western Europe LAC MENA NAR SAR SSA Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). The EAP-4 countries are Malaysia, Philippines, Thailand, and Viet Nam. NAR = North America, SAR = South Asia region. ECA = East and Central Asia region, LAC = Latin America and the Caribbean region, MENA = Middle East and North Africa region, SSA = Sub-Sharan Africa region, and EAP-Other = East Asia and the Pacific region excluding the EA-5 countries. The EAP-Other with M&A data include Cambodia, China, Indonesia, Kiribati, Lao PDR, Mongolia, Myanmar, Papua New Guinea, Singapore, Timor-Leste, Macao SAR (China), Hong Kong SAR (China), Taiwan (China), Fiji, French Polynesia, Marshall Islands, Federated States of Micro- nesia, New Caledonia, New Zealand, Northern Mariana Islands, Samoa, Solomon Islands, Tonga, and Vanuatu. A more focused look into the five countries reviewed shows different paths when it comes to digital conglomerate mergers. Similar to the trend in conglomerate mergers, Korea has the larg- est number conglomerate digital mergers over the 2012-2021 period, with about 964 of such deals representing about 72 percent of the total conglomerate digital merger activities among the EA-5 countries (Figure 7 (a)). Malaysia was next with 157 and its share was just 12 percent among the EA-5 countries, while Viet Nam and Thailand had 89 and 74, representing 7 percent and 6 percent, respectively. Philippines registered the lowest with just 49 mergers, which is 4 percent of the total. However, Thailand’s number of conglomerate digital mergers represented about 11.4 percent of all conglomerate mergers in the country, the highest among the EA-5 countries, while Viet Nam’s number of conglomerate digital mergers, representing just 4.5 percent of all conglomerate merg- ers in the country, is the lowest. The share of conglomerate digital mergers in all conglomerate mergers in the average EAP country was, however, higher than in any of the EA-5 countries (Figure 7 (b)). 30 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 7. Digital conglomerate mergers (2012-2021) a. Conglomerate Digital Mergers b. Share of Conglomerate Digital Mergers in Conglomerate Mergers 16% 7% 14% 6% 14% 4% 12% 11.4% 11.4% 10.7% 12% 10% 8.2% 8% 72% 6% 4.5% 4% 2% Korea, Rep. Thailand 0% EAP Thailand Korea, Rep. Philippines Malaysia Viet Nam Malaysia Viet Nam Philippines Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). The top digital industries targeted by conglomerate acquirors show a prevalence of content generation and software design. The top digital industries targeted over 2012-2021 in the EA-5 countries by acquirors in other industries unrelated to the digital sector (i.e., conglomerate ac- quirors) include software publishers, custom computer programming services, motion picture and video production, electronic shopping, internet publishing, broadcasting/web search portals, and internet service provision (Figure 8). While these digital industries are among the top indus- tries targeted by conglomerate acquirors across the EA-5 countries, there is heterogeneity within each country. For instance, television broadcasting is among the top 10 in Korea, data processing, hosting, and related services is among the top 10 in Malaysia, electronic auctions are among the top 10 in Philippines, music publishers are among the top 10 in Thailand, and computer systems design services among the top 10 in Viet Nam. (See country figures in Annex A). Domestic acquirors accounted for most of the conglomerate digital mergers in the EA-5 countries. Most of the conglomerate acquirors engaging in conglomerate mergers in general, and particularly mergers relating to the digital sector, are headquartered domestically in the EA-5 countries (Figure 9 (a) and Figure 9 (b)). There are, however, conglomerate acquirors outside the EA-5 countries, including from North Macedonia,35 Japan, Singapore, Hong Kong, and the United States. 35 The acquirors headquartered in North Macedonia are all undisclosed acquirors, except three which are investor groups. 31 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 8. Top 25 Conglomerate Digital Targeted in the EA-5 Countries Over the 10-Year Period, 2012-2021 Number of digital mergers 0 50 100 150 200 250 Software Publishers 234 (17.6%) Custom Computer Programming Services 148 (11.1%) Motion Picture and Video Production 147 (11.0%) Electronic Shopping 99 (7.4%) Internet Publishing And Broadcasting And WebSearch Portals 73 (5.5%) Internet Service Providers 73 (5.5%) Book Publishers 72 (5.4%) Computer Systems Design Services 48 (3.6%) Other Motion Picture and Video Industries 38 (2.9%) Television Broadcasting 37 (2.8%) Newspaper Publishers 33 (2.5%) Data Processing, Hosting, and Related Services 32 (2.4%) Cable and Other Subscription Programming 32 (2.4%) Wired Telecommunications Carriers 29 (2.2%) Integrated Record Production/Distribution 27 (2.0%) Electronic Computer Manufacturing 27 (2.0%) Music Publishers 16 (1.2%) Motion Picture and Video Distribution 16 (1.2%) Professional and Management Development Training 15 (1.1%) Computer Facilities Management Services 15 (1.1%) Other Computer Related Services 10 (0.8%) Periodical Publishers 9 (0.7%) Wireless Telecommunications Carriers (Except Satellite) 8 (0.6%) 8 (0.6%) Teleproduction and Other Postproduction Services Mail-Order Houses 7 (0.5%) 1333 (100%) Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 32 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 9. Top 10 Acquiror Nations Driving Conglomerate Mergers and Conglomerate Digital Mergers in the EA-5 Countries, 2012-2021 a. Conglomerate Mergers 0 1000 2000 3000 4000 5000 6000 7000 8000 Korea, Rep. 7667 Malaysia 1552 Viet Nam 1434 North Macedonia 592 Thailand 433 Philippines 323 Japan 309 Singapore 293 Hong Kong SAR, China 190 United States 189 b. Conglomerate Digital Mergers 0 2000 4000 6000 8000 10000 12000 14000 16000 Korea, Rep. 1367 Malaysia 180 Thailand 68 Viet Nam 55 Japan 62 United States 53 North Macedonia 72 Philippines 50 Singapore 50 Hong Kong SAR, China 32 Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 33 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges In addition, State-owned entities in EAP tend to be more involved in conglomerate merg- ers than in other regions. Across the EAP region, about 11 percent of all conglomerate mergers and acquisitions transactions over the 10-year period 2012-2021 had a government-owned entity or sovereign wealth fund (SWF) in the various levels of the ownership structure of the target or acquiror company. This is significantly higher than the global average (6.8 percent) and is only surpassed by the ECA region (Figure 10 (a)). Government-owned entities in EAP are also involved in conglomerate digital mergers and acquisitions deals: about 5.6 percent of all conglomerate digital mergers had government-owned entities involved, higher than what is observed globally (Figure 10 (b)). Figure 10. Share of Conglomerate and Conglomerate Digital Mergers with Government- Owned Entities Involvement a. Conglomerate Mergers 20% 16% 16% Global avg. (6.8%) 12% 11% 9% 8% 8% 6% 6% 6% 4% 2% 0% ECA EAP MENA SSA SAR Western LAC NAR Europe 34 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges b. Conglomerate Digital Mergers 14,0% 12,0% 11,5% 10,0% Global avg. (3.8%) 8,0% 7,3% 6,9% 5,6% 6,0% 4,3% 3,8% 4,0% 2,7% 2,0% 1,1% 0% ECA SSA MENA EAP Western SAR LAC NAR Europe Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). A deal is flagged as government-owned involvement if the public mid code of the target, acquiror, seller, investor, imme- diate, intermediate, or ultimate parent of the target, immediate, intermediate, or ultimate parent of the acquiror, immediate, intermediate, or ultimate parent of a seller, or immediate, intermediate, or ultimate parent of an investor is government. A deal is sovereign wealth fund involvement if the target, acquiror, seller, investor, immediate, intermediate, or ultimate parent of the target, immediate, intermediate, or ultimate parent of the acquiror, immediate, intermediate, or ultimate parent of a seller, or immediate, intermediate, or ultimate parent of an investor is a sovereign wealth fund. A sovereign wealth fund is a govern- ment-controlled investment fund that is funded from foreign reserves or commodities and participates in foreign investment activity with a long-term investment horizon. Among the five EAP countries, Viet Nam had the highest share of conglomerate merger deals with a government-owned entity involved, perhaps reflecting the leading role that SOEs play in its economy. The share of conglomerate merger transactions that had a Vietnamese govern- ment entity involved on either the sell-side or the buy-side of the transaction was three times high- er than in Malaysia, the second largest share, and almost twice that of the average EAP country. Across the EA-5, the Thai government was the least involved in conglomerate mergers in general (Figure 11 (a)). In terms of digital sector transactions undertaken by conglomerates groups, en- tities related to the Philippine government had the highest involvement in conglomerate digital mergers, while Korea had the lowest (Figure 11 (b)). 35 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 11. Share of Conglomerate and Conglomerate Digital Mergers with Government- Owned Entities Involvement in the EA-5 Countries a. Conglomerate Mergers 24% 20% 20% EAP avg. (10.7%) 16% 12% 7% 8% 5% 5% 4% 4% 0% Viet Nam Malaysia Korea, Rep. Philippines Thailand b. Conglomerate Digital Mergers 24% 20% 16% 12% EAP avg. (5.6%) 8,2% 7,9% 8% 5,1% 4,1% 4% 1,7% 0% Philippines Viet Nam Malaysia Thailand Korea, Rep. Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). A deal is flagged as government-owned involvement if the public mid code of the target, acquiror, seller, investor, imme- diate, intermediate, or ultimate parent of the target, immediate, intermediate, or ultimate parent of the acquiror, immediate, intermediate, or ultimate parent of a seller, or immediate, intermediate, or ultimate parent of an investor is government. A deal is sovereign wealth fund involvement if the target, acquiror, seller, investor, immediate, intermediate, or ultimate parent of the target, immediate, intermediate, or ultimate parent of the acquiror, immediate, intermediate, or ultimate parent of a seller, or immediate, intermediate, or ultimate parent of an investor is a sovereign wealth fund. A sovereign wealth fund is a govern- ment-controlled investment fund that is funded from foreign reserves or commodities and participates in foreign investment activity with a long-term investment horizon. 36 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 03 Dealing with Conglomerate Mergers: Lessons Learnt and the Way Forward 37 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 3. Dealing with conglomerate mergers: lessons learnt and the way forward Authorities have traditionally viewed conglomerate mergers as less likely to cause anticom- petitive effects, thus often granting more lenient treatment. Unlike horizontal and vertical mergers, conglomerate mergers do not typically raise the risks of increased market power that may impede competition. However, conglomerate mergers could affect markets through the foreclosure of potential and actual competitors (for example, a firm could condition sales of a product or service in a market that it dominates on the purchase of a product or service in another market, potentially limiting interoperability with competitors). Nevertheless, con- glomerate mergers rarely trigger a deeper review or approval with conditions and often benefit from simplified merger reviews. These reduce the administrative burden caused by merger anal- ysis both for authorities as well as for merging parties, but are based on the assumption that the operations do not typically raise competition concerns (Annex B elaborates on these issues). However, when it comes to digital markets, traditional antitrust tools often require adap- tation and merger control is not an exception. Cases involving digital platforms require com- petition authorities to tailor their analyses to multisided markets and consider the impact of the control of data in their assessments. This complicates the definition of markets as well as the assessment of market shares, market power/dominance, and the assessment of unilateral and coordinated effects. Most common frameworks for defining markets, which typically rely on price, such as the hypothetical monopolist test, can be more difficult to apply to digital platforms that provide nominally-free products. Therefore, competition analysis in digital markets may need to: 1) broaden the concept of consumer welfare beyond prices; and 2) consider new dimensions of competition, such as personal data protection. In addition, platforms typically exist in a digital ecosystem where providers of complementary digital products interconnect and regularly ex- change data to provide consumer products. Thus, competition authorities need to understand how competition restrictions affect these complementary products alongside the direct effects on the users of a platform. 38 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Box 2. Digital platform characteristics and risks The economies of scope and scale, network effects, and the effects of data collection have been key to understanding digital platform development. These features of digital platforms have made them tend to a monopolistic structure, also known as a winner-takes-all – or most – market structure.36 Competition, consequently, turns from competition in the market to competi- tion for the market. Network effects are particularly relevant to understand competition in digital markets. There are positive network effects when the more people connected to a network, the more valuable that network is for its users.37 As the network grows, it becomes more attractive to potential users, as this would be the platform with more connections to offer.38 Markets with networks effects are more prone to concentration, as consumers benefit from interacting on the network with the largest number of users.39 Data-driven economies of scope are also one of the main characteristics of digital markets. Data is central to the development of digital markets.40 Merging datasets can help digital plat- forms gain insights and economic value compared to the value of the data if kept separate. This would help digital platforms with large amounts of data to improve their products and expand their activities into new markets.41 42 Economies of scale are also present in the digital environment. The cost of producing an e-book or connecting users through a social media platform declines as more services are provided since they present high fixed costs and low marginal costs.43 Digital markets largely avoid distribution costs, being able to distribute services with minimal or no cost. Combined with the fact that cost is not proportional to the number of customers served, this factor can transform into an advantage for incumbents.44 Source: Author’s elaboration 36 See at Stigler Committee. (2019). Digital Platforms: Final report. The University of Chicago Booth School of Business, p. 29. 37 See at Khan, L. (2019) The separation of platforms and commerce. Columbia Law Review, Volume 119, No. 4, 973-1098. 38 See at Stigler Report, supra note 36, p. 29. 39 See idem 40 See generally Crémer, J., Montjoye, Y.-A. de, & Schweitzer, H. (2019). Competition Policy for the Digital Era. Publications Office of the European Union, available at https://data.europa.eu/doi/10.2763/407537. 41 See generally Martens, B. (2020) Data Access, Consumer Interests and Social Welfare: An Economic Perspective. SSRN Scholarly Paper. Available at https://ssrn.com/abstract=3605383 42 See at Stigler Report, supra note 36, p. 31. 43 See idem, p. 31. 44 See at Crémer et al. 2019 source note supra note 40, p. 2. 39 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Thus, digital markets and their peculiarities have revamped the debate over the approach to conglomerate mergers. Digital platforms, including Amazon, Apple, Facebook, Google, and Microsoft, have undertaken an intense merger strategy, often through conglomerate merg- ers, that, in the earliest mergers, has gone under the radar of antitrust authorities or bene- fited from lighter reviews.45 Regulators, policymakers, and academics have become increasingly concerned with concentration in digital markets.46 3.1 Threats to competition from conglomerate mergers in digital markets Given their business models, digital platforms have incentives not only to attract a grow- ing number of users to their core service but also to expand into complementary services. By connecting multiple parties in different markets, i.e. multi-actor ecosystems, or by providing complementary services or products, i.e. multi-product ecosystems, platforms have expanded their reach into new markets.47 Digital ecosystems facilitate interaction between actors in differ- ent groups, including for example producers, content providers, developers, and consumers.48 This multiplicity of products, services or connections offered by digital platforms increases their complementarity, incentivizing users to stay in one ecosystem to benefit from increased interop- erability.49 The growth of digital ecosystems has disrupted the analysis of conglomerate mergers. By bringing together firms operating in diverse and seemingly unrelated industries through digital ecosystems, conglomerate mergers may not only drive demand towards products within such ecosystem but even be able to foreclose from the market those firms that cannot access the eco- system. Digital platforms may not develop directly in the platform’s main market, but start oper- ating in a complementary service and then grow into a competitor to the dominant platform’s core service. A dominant platform that expands beyond its initial business may not only collect more data but also prevent the development of future competitors. 45 See at Motta M. & Peitz M. (2021). Big tech mergers. Information Economics and Policy, 100868, p. 1. Available at https:// linkinghub.elsevier.com/retrieve/pii/S0167624520300111 46 These reports include, among others, the following ones: Stigler Report, supra note 36; House Judiciary Committee. (2020). Majority staff report and recommendations Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary. United States Congress; Crémer et al. (2019) source note 40; Competition and Markets Authority. (2020). Online platforms and digital advertising market study. CMA. 47 See at Fletcher, A. (2020). Digital Competition Policy: Are ecosystems Different? Hearing on Competition Economics of Digital Ecosystems, p. 2, available at https://one.oecd.org/document/DAF/COMP/WD(2020)96/en/pdf. 48 See at Petropoulos, G. (2020). Competition Economics of Digital Ecosystems . Hearing on Competition Economics of Digital Ecosystems, OECD, DAF/COMP/WD(2020)91, available at https://one.oecd.org/document/DAF/COMP/WD(2020)91/en/pdf 49 See at Bourreau, M.. (2020). Some Economics of Digital Ecosystems. Competition Economics of Digital Ecosystems, p. 4-5, available at https://one.oecd.org/document/DAF/COMP/WD(2020)89/en/pdf 40 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Consequently, conglomerate mergers in digital markets are being seen through a different lens than those in brick-and-mortar markets. Potential leverage of costumers’ data and impact of network effects are at the core of the switch of how regulators look at conglomerate mergers. 50 Also, product complementarity is key as mergers involving complementary products/services may affect the ordinary course of businesses and prevent entrance to digital markets.51 In this context, new theories of harm related to conglomerate mergers in digital markets have been analyzed and developed.52 Strengthening the classic bundling and envelopment theory of harm in digital platform markets New entrants in niche markets struggle to compete with the digital platforms that can bun- dle different services and products in separate markets. Competitive threats in the digital environment may come from the edges “[b]uying up promising start-ups that offer fringe products or services may therefore result in early elimination of potential competitive threats—which may be particularly problematic if done systematically.”53 Through expansion strategies based on conglomerate mergers, digital platforms can prevent start-ups from growing and becoming significant competitors.54 For instance, dominant platforms could encourage users to stay within their network of products/services 55 either by increasing switching costs56 or gen- erating portfolio power through the variety of the products offered by the platform that cannot be replicated by competitors.57 When tying creates an ecosystem of digital products, it can be harder for new firms to enter, thus reducing innovation.58 Tying products together after a merger could mean that an entrant must provide all the products in the bundle to be able to compete (see Annex B Box 6). Therefore, innovative entrants with standalone products/services may be excluded from the market. Since 50 See at OECD. 2020. Conglomerate effects of mergers – Summaries of contributions, DAF/COMP/WD(2020)57, p. 15. 51 Idem 52 See generally Bourreau, M., & De Streel, A. (2019). Digital Conglomerates and EU Competition Policy. SSRN Electronic Journal. Available at https://doi.org/10.2139/ssrn.3350512.. 53 See at Crémer et al. 2019 supra note 40, p 116. 54 See generally Tirole, J. (2018, December 31). Regulating the Disrupters. Mint. Available at https://www.livemint.com/ Technology/XsgWUgy9tR4uaoME7xtITI/Regulating-the-disrupters-Jean-Tirole.html 55 See generally Witt, A. (2020). Big tech Acquisitions: The Return of Conglomerate Merger Control?. SSRN Scholarly Paper. https://papers.ssrn.com/abstract=3683922. 56 See generally Carlton, D., & Waldman, M. (2005). Tying, Upgrades, and Switching Costs in Durable-Goods Markets. National Bureau of Economic Research. Available at https://doi.org/10.3386/w11407 57 See at Church, J. (2008) Conglomerate Mergers. SSRN Scholarly Paper. Rochester, NY, p. 15. Under this framework, a merger risks generating portfolio effects when “the merger increases the number of products under the control of the combined firm, and in certain circumstances that this increase in the portfolio or range of products provides the combined firm with the opportunity to engage in exclusionary conduct and thereby increase its market power. Essentially, the concern is that the merger will allow the combined firm to engage in some form of “contingent sale,” that is, condition the sale of a product in which it has market power on the purchase of other products acquired in the merger. Conduct that implements such a contingent sale includes bundling, tying, and loyalty discounts. This conduct can be exclusionary if it reduces the competitive constraint on the conglomerate exerted by its competitors who have smaller product portfolios: it is anticompetitive if it reduces consumer welfare or reduces total surplus (inefficient)” available at https://papers.ssrn. com/abstract=1280524. 58 See generally Bourreau and Streel, A.D. 2019, supra note 52. 41 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges the merged entity may, therefore, face less competitive pressures in both markets, it may have fewer incentives to innovate.59 Box 3. Efficiencies and competition concerns of tying and budling In particular, one of the main concerns regarding conglomerate mergers is the potential anti-com- petitive effects brought by contingent sales. In other words, the merged entity could tie or bundle its products/services, forcing customers to buy solely from the conglomerate firm. Economic literature on tying and bundling is abundant. Early economic analysis theorized that a mo- nopolist in one market cannot profitably leverage its market power in its monopolized market to an- other competitive market (single-monopoly-profit theory).60 This theory suggests that when a firm is tying products/services, there must be efficiency reasons which tend to be pro-competitive: for exam- ple, lower production cost, better compatibility, positive network externality.61 Based on this theory, competition authorities should not intervene against tying practices as they are considered efficiency enhancing.62 Nevertheless, several theories of harm from tying and bundling have been developed in settings such as competitive or oligopolistic structures, with specific distributions of customer valuations, with com- plementary or independent products, with or without network externalities, among other examples.63 In these theories, the exclusion of rivals or barriers to entry can be created through bundling when a commitment to bundle (such as technical bundling) can be made. Other studies have shown that, when products are independent, a monopolist may have an incentive to bundle if it leads to the fore- closure of its competitors.64 Additionally, in models where bundling shifts sufficient demand away from rivals, thus reducing competition in the future, studies show that the monopolist has an incentive to 59 See generally Neven, D. J. (2005). The Analysis of Conglomerate Effects in EU Merger Control. European Union. Available at https://ec.europa.eu/dgs/competition/economist/conglomerate.pdf. 60 Edwards, C. D. (1955). Conglomerate Bigness as a Source of Power. In Business Concentration and Price Policy, 331–59. Princeton University Press. Available at https://www.nber.org/books-and-chapters/business-concentration-and-price- policy/conglomerate-bigness-source-power. 61 See generally Nalebuff, B. (2003) Bundling, Tying, and Portfolio Effects, Part 1 – Conceptual Issues, DTI Economics Paper No1. 62 See generally Bishop, S., Lofaro, A., Rosati., F., Young, J. (2005) The Efficiency Enhancing Effects of Non-Horizontal Mergers, RBB Economics, Page 6. 63 See the overview of the literature on bundling strategies in Nalebuff, supra note 61 at p. 20; Evans, D., & Salinger, M. (2005). Why do Firms Bundle and Tie? Evidence from Competitive Markets and Implications for Tying Law. Yale Journal on Regulation, Volume 22, p. 40. 64 See Bernheim & Whinston (1990) supra note 12. 42 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges bundle even when the products are complementary.65 This rationale was the basis of the analysis in the case US v. Microsoft, where Microsoft tied its Operating System Windows with its browser Internet Explorer to prevent Netscape from entering the operating system market.66 Finally, the bundling strategy by an incumbent has been also found to be able to reduce R&D invest- ment by entrants.67 Source: Neven, D., 2008. The analysis of conglomerate effects in EU merger control. Handbook of Antitrust Eco- nomics, MIT Press, Cambridge, MA. OECD, ‘Portfolio Effects in Conglomerate Mergers – DAFFE/COMP(2002)5, Competition Law & Policy (2001) Digital platforms have also used envelopment to expand into adjacent markets. Envelopment refers to “…the ability of a dominant online platform to merge with another online platform in a different market that has an overlapping user base.”68 Rival platforms may be incapable of match- ing the post-merger firm’s user base and economies of scale and scope.69 Even when providing services at price of zero, which is very common in digital platform markets, the strategy can be profitable. For example, the merged platform may impose broad data collection terms on its users and use this data to its advantage in other markets.70 Different Competition Authorities have expressed concerns related to tying and bundling strategies, including Chile’s National Economic Prosecutor (Fiscalía Nacional Económica, FNE).71 The FNE analyzed the Cornershop Technologies LLC & Uber merger case as a potentially harmful conglomerate merger. Cornershop operates in the grocery delivery market, while Uber offers ride-sharing services. In phase one, the FNE determined four potential theories of harm, including “(i) the potential market foreclosure through mixed bundling, (ii) market foreclosure as a result of further data accumulation, (iii) deterioration of consumers’ privacy policies and (iv) de- terioration of the conditions of service for delivery partners, shoppers and drivers (for both Uber 65 See generally Carlton and Waldman, 2002 supra note 11. 66 See generally United States v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001) 67 See generally Choi, J. P. (2004). Tying and innovation: A dynamic analysis of tying arrangements. The Economic Journal, 114(492), 83–101. 68 See generally Mancini, J. (2021). Making online markets more competitive: The benefits of conglomerate merger review. OECD 2020 Going Digital Toolkit Note, No. 3. 69 See generally Bourreau and Streel, A.D. 2019, supra note 52. 70 See generally Condorelli, D. and Padilla, J. (2019), Harnessing Platform Envelopment Through Privacy Policy Tying. SSRN Electronic Journal. Available at https://doi.org/10.2139/ssrn.3504025 and Eisenmann, T., Parker G., Alstyne, M., V. (2011) Platform Envelopment, Strategic Management Journal, Volume 32, p. 1270-1271 and 1283, available at https://doi. org/10.1002/smj.935 71 The National Competition Authority (In Spanish Fiscalía Nacional Económica or “FNE”) has not developed conglomerate merger guidelines. Nonetheless, the Chilean Competition Tribunal has provided some guidance on the effects of conglomerate cases see generally at OECD, (2020) Conglomerate effects of mergers – Note by Chile, DAF/COMP/ WD(2020)60, p. 2. 43 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges and Cornershop).”72 These concerns lead the regulator to conduct an in-depth investigation in a Phase 2 analysis. The FNE concluded that there was enough competitive pressure from grocery stores, supermarkets, and other delivery applications to prevent the negative consequences of the merger. The FNE also considered the overlap between users from both companies and con- cluded that the number of users who operated through both services was small, preventing Uber from foreclosing the market to other grocery delivery companies. Similarly, after reviewing 105 conglomerate cases in 2018, the Japanese Federal Trade Com- mission (JFTC) decided to amend its “Guidelines to Application of the Antimonopoly Act Con- cerning Review of Business Combination” in December 2019. These Guidelines determine the aspects and factors of the digital economy that should be considered when analyzing conglomer- ate mergers.73 In particular, the Guidelines highlighted how conglomerate mergers could damage competition by combining products, obtaining confidential information, or eliminating access to potential competitors. An example of these practices is the harnessing of data.74 After this reform, the JFTC analyzed the M3 / Nihon Ultmarc merger in 2019. M3, a digital platform that serves doc- tors and pharmaceutical companies, acquired the voting rights in Nihon Ultmarc, a database pro- vider of medical personnel data. The theory of harm of the JFTC was that the merged companies would integrate Nihon’s MDB database with the services provided by M3 at a discounted price, foreclosing the market of drug information for doctors to non-integrated competitors.75 The JFTC imposed remedies on the merging parties preventing them from (i) conditioning the provision of the MDB database to contracting other services provided by the merging parties or not contract- ing with other providers and (ii) giving preferential treatment to those customers that contract both the database and other services provided by the merging companies. 76 The E.U.’s Microsoft & LinkedIn merger brings forward a different set of concerns related to bundling, that of default settings. Microsoft is one of the world’s leading operating system sup- pliers, while LinkedIn operates a professional social network (PSN). The European Commission’s concerns regarding this merger were related to Microsoft preinstalling LinkedIn on all Windows personal computers77 and the merger of databases from the two companies. Both could have neg- ative consequences for competitors. Microsoft agreed to a set of behavioral remedies to prevent these consequences: (i) grant rival PSN providers access to APIs that would allow them to com- pete with LinkedIn, and (ii) not force users to install LinkedIn on their Microsoft computers and allow for it to be removed.78 72 See Idem. 73 See at OECD. (2020). Conglomerate effects of mergers – Note by Japan, DAF/COMP/WD(2020) at p. 11. 74 See at OECD. 2020. Note by Japan supra note 73 at p. 3-5. 75 See at International Competition Network. ICN Conglomerate Mergers Project Report (2019-2020). International Competition Network, 2020. https://www.internationalcompetitionnetwork.org/wp-content/uploads/2020/09/MWG_ ConglomerateMergersReport.pdf. 76 See at OECD. 2020. Note by Japan supra note 73 at p. 6. 77 See at OECD. (2020). Conglomerate effects of mergers – Note by the European Union, DAF/COMP/WD(2020)8, p. 24, OECD, which states “In the E.C.’s view, the pre-installation practice would substantially increase the user membership of LinkedIn, while OEMs would have no incentive to install a second PSN application that would be perceived as a superfluous duplication of LinkedIn. For the same reason, users would not spontaneously download a second non-pre-installed application serving the same purpose (“end users’ inertia”)” available at https://one.oecd.org/document/DAF/COMP/ WD(2020)8/en/pdf 78 See generally OECD. Note by the EU 2020, supra note 77. 44 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Bundling was also part of the South Africa Competition Commission79 analysis of the merger between MIH eCommerce Holdings and WeBuyCars. The Competition Commission blocked the merger between MIH eCommerce Holdings and WeBuyCars in 2019. The Competition Commission argued that the acquisition of WeBuyCars, a car buying service, by Naspers, the group controlling OLX and online generalist classified advertisement platform, and Autotrader, a specialized au- tomotive online advertisement portal, could harm competition in the online selling market. The theories of harm of the South Africa Competition Commission included the possibility of bundling, particularly by “(…) self-preferencing, the combination of different datasets, economies of scale and scope in advertising, generating capital and technology solutions, and feedback effects.” 80 The Commission argued that there was no competitive pressure on WeBuyCars as the traditional dealers did not provide the same services as the online platform. This lack of competition com- bined with the data advantage of the combination of both companies would allow the platform to preference their own service, foreclosing competitors.81 Table 2. Selected examples of bundling and envelopment cases in digital markets Country Case Concern Remedy Chile Merger between The FNE determined No remedy was -Fiscalia Cornershop four theories of harm: imposed. The Nacional Technologies LLC & 1. Market foreclosure FNE concluded Económica Uber. Cornershop through bundling. that there was (FNE) operates in the grocery 2. Market foreclosure enough competitive delivery market, while through data pressure to prevent Uber offers ride- accumulation. anticompetitive sharing services. 3. Deterioration of outcomes. consumers’ privacy 4. Deterioration of the conditions of service. Japan M3 acquired Nihon The JFTC analyzed whether The remedies – Japan Ultmarc. M3, a the merged companies imposed by the JFTC Fair Trade digital platform that would integrate their prohibited conditioning Commission serves doctors and services at a discounted the provision of pharmaceutical price. Which could the database to companies, while Nihon foreclose the market of contracting other Ultmarc is a database drug information to non- services as well as provider of medical integrated competitors. giving preferential personnel data. treatment to those that contracted both services. 79 The South Africa Competition Commission analyzed 103 conglomerate mergers in the four-year period between 2016 and 2019, a 7.1% of the total number of the notified mergers. Among these concentration operations, 14% went to Phase 3 analysis, showing the topics’ complexity. OECD, (2020) Conglomerate effects of mergers – Note by South Africa, DAF/ COMP/WD(2020)49, p. 6. 80 See idem 81 See at ICN (2020) supra note 75, p. 14. 45 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges European Merger between The EU argued that Microsoft agreed to a Union Microsoft and Microsoft could preinstall set of commitments Linkedin. Microsoft Linkedin on all Microsoft including: i) granting is one of the leading PCs and combine competing PSNs providers of operating datasets providing a access to APIs, and system while Linkedin competitive advantage. (ii) not forcing users operates a professional to install LinkedIn social network. on their Microsoft computers and allow for its removal. South Acquisition of The Commission was The Commission Africa WeBuyCars by MIH concerned that the blocked the operation. South eCommerce Holdings. combined enterprises African The acquiring could self-preference Competition holding owned OLX a their services, combine Commission generalist classified datasets and benefit from advertisement platform, economies of scale and and Autotrader, a scope in advertising. specialized automotive online advertisement portal. WeBuyCars provided car buying services. Source: Fiscalía Nacional Económica (May 29, 2020) Approval Report Acquisition of Cornershop by Uver Technologies Inc. Rol FNE F217-2019; OECD. (2020). Conglomerate effects of mergers – Note by Japan, DAF/COMP/WD(2020); European Commission. (December 6, 2016) Decision in the case M.8124 - Microsoft/LinkedIn; South Africa Competition Commission (March 27, 2020) Decision in the proposed acquisition of WeBuyCars of MIH eCommerce Holdings. Using data collected through mergers to foreclosure markets Data allows digital providers to improve their services, thus entering a “positive feedback loop” generated by data-related economies of scale. Larger digital platforms groups can collect more user data, which allows them to improve their services, and, in turn, attract more users.82 The collection of personal data offers insight into users’ behavior, providing the dominant plat- form with an advantage in its strategy to increase sales or revenue.83 Diversifying the platform’s operation through conglomerate mergers would extend their data -advantage by gaining access to confidential, personal, or behavioral data that would be useful beyond the specific market of 82 See at Argentesi, E, Buccirossi, P., Calvano, E., Duso, T., Marrazzo, A., & Nava, S. (2019). Ex-post Assessment of Merger Control Decisions in Digital Markets. Lear, p. 138. Available at https://www.learlab.com/publication/ex-post-assessment- of-merger-control-decisions-in-digital-markets/,. 83 See at Lim, Y. (2020). Tech wars: Return of the Conglomerate ―Throwback or Dawn of a New Series for Competition in the Digital Era? ―. Journal of Korean Law, 19(1), 47–62, at p. 56. 46 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges the acquired company. These data-driven network effects have helped the tech conglomerates increase their dominance in both connected and non-connected markets. 84 Data is one of the main factors behind diversification strategies of digital companies. Prüfer and Schotmuller (2017) conclude that, due to data driven indirect network effects in connected markets, incentives to acquire user data in one market can justify market entry into another mar- ket.85 Therefore, digital companies are motivated to diversify the use of data collected through their existing services and develop new product variants or totally new products.86 These develop- ments can be done in completely new markets unrelated to the core business of the digital plat- form or in a related market. In any of these circumstances, complementary data of their custom- ers can be collected. Data acquisition through diversification can be sought through conglomerate mergers to obtain advantages over current or potential competitors. How, and whether, data can insulate a firm from competition is a central question when it comes to competition in digital markets.87 Motta and Peitz88 develop a model under which data is an asset to provide better services to advertisers. They consider a framework with no data sharing or data sales. The authors conclude that a merger of ad-financed firms in different and independent product markets would affect market outcomes. The data advantage provided by the merger would allow the merged company to provide a higher quality product for advertisers, forc- ing the non-merged firms that previously competed with the acquired firm to exit their markets. Although advertisers may enjoy better services in the short run, Motta and Peitz argue that such conglomerate mergers could, in very particular cases, have a long-run negative effect with inferior services and less consumer surplus. Data collection was at the center of the analysis in the case involving Facebook’s acquisition of WhatsApp. The European Commission argued that WhatsApp and Facebook Messenger, both messaging communication applications, were not close competitors given the differenc- es in the features provided by each one.89 Nonetheless, the Commission analyzed whether Face- book could utilize WhatsApp as a data source, allowing the company to provide more personalized advertisement services. The Commission concluded that there was enough competitive pressure from other providers of advertising services to prevent Facebook from increasing its market share in the advertisement business. Additionally, Facebook assured the Commission that matching us- ers on Facebook with their WhatsApp accounts was not feasible, limiting the alleged value of collecting data from the acquired company. The Commission later fined Facebook for providing misleading information since, two years after the merger decision, it made it possible for users to 84 Idem. 85 See at Prüfer, J., & Schottmüller, C. (2021). Competing with Big Data. The Journal of Industrial Economics, 69(4), 967–1008, p. 3. 86 See generally Bourreau and Streel, A.D. (2019), supra note 52. 87 See generally Lambrecht, A., & Tucker, C. (2015). Can big data protect a firm from competition? SSRN Electronic Journal, pages 1-7. Available at https://doi.org/10.2139/ssrn.2705530; German Monopolkommission, (2015) Competition Policy: The Challenge of Digital Markets, Special Report 68, Paragraph S10, Page 4 88 See generally Motta & Peitz. (2021), supra note 45. 89 See at European Commission, DG Comp, Case M.7217 - Facebook/WhatsApp (2004), para. 106 & 107, available at https:// ec.europa.eu/competition/mergers/cases/decisions/m7217_20141003_20310_3962132_EN.pdf 47 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges link their WhatsApp and Facebook accounts, contrary to what had been told to the Commission.90 Data collection was at the center of this merger and provides a clear example of the complexities of merger analysis in digital markets, even when the merging entities are not considered close competitors. The consequences of data handling and the harms of conglomerate mergers were part of the analysis of the merger between the Czech Republic Rockaway Capital and Heureka Shopping by the Office for the Protection of Competition of the Czech Republic in 2016. The Competition Regulator conditioned the merger between the two parties. The main concern was the shar- ing of strictly confidential information on e-shops and their operation that could provide the merging companies with an advantage against their competitors. Consequently, the merg- er was conditioned to transparency-related remedies forcing the merging parties to detail the companies with which they operate and to not condition the provision of the services of Heureka to the provision of sensitive information. Independent e-shops should maintain the same advertisement options they held before the merger. 91 Hindering innovation and entry through killer acquisitions Acquisition of a startup digital platform by dominant players, often considered conglomerate mergers due to lack of market overlap, limit innovation and entry in new platform markets. The threat is based on the ability of dominant players to create “kill zones” where start-ups are present but cannot grow.92 Such areas are dominated by incumbent digital platforms aggressively acquiring potential rivals or adopting aggressive strategies to limit entry or expansion of compet- itors. Kamepalli, et al. study why acquisitions of entrant firms by an incumbent can deter innova- tion and entry into the digital platform industry. They conclude that with high switching costs and strong network externalities, a high probability of an acquisition induces potential early adopters to wait for the entrant’s product to be integrated into the incumbent’s product instead of switch- ing to the entrant. Therefore, the incumbent is able to acquire the entrant for a lower price, thus reducing prospective payoffs of entrants. Bryan and Hovenkamp (2020) show that, in a model with differentiated products, an acquisition by a stronger acquirer prevents its competitor from obtaining access to a new technology developed by the target firm. Therefore, the motivation for the acquisition may be to exclude a weaker rival from accessing the target’s technology.93 The creation of a “kill zone” can also hinder investment and deter entry. Empirical data shows that in the three years following an acquisition by Google and Facebook in a certain industry, investments in that sector drop by more than 40% and the number of deals falls by more than 90 European Commission. (2017) Mergers: Commission Fines Facebook €110 Million for Providing Misleading Information about Whatsapp Takeover, European Commission, available at https://ec.europa.eu/commission/presscorner/home/en (last visited Oct 14, 2022). 91 See at ICN (2020) supra note 75, p. 14. 92 See at Schechter, A. (2018, May 25). Google and Facebook’s Kill Zone: “We’ve Taken the Focus off of Rewarding Genius and innovation to Rewarding Capital and Scale. ProMarket. Available at https://www.promarket.org/2018/05/25/google- facebooks-kill-zone-weve-taken-focus-off-rewarding-genius-innovation-rewarding-capital-scale/. 93 See generally Bryan, K.A. and E. Hovenkamp (2020) ‘Antitrust limits on startup acquisitions’, Review of Industrial Organization 56: 615–636. Available at https://doi.org/10.1007/s11151-020-09751-5 48 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 20%.94 Another study shows that acquisitions of platforms by BigTech decreased market entry in non-platform markets.95 In a similar study, Koski et al (2020) find that large technology firms buyouts in the US and Europe reduced market entry rates and decreased available venture capital funding in the target product markets. Reinforcing dominance through economies of scope The economies of scope are key to understand the diversification strategies of digital com- panies, and therefore, conglomerate mergers.96 In multiproduct firms, economies of scope result from sharable inputs to generate products or services.97 This increases the incentives of firms to expand into multi-product ecosystems. In digital markets, sharable inputs (software or algorithms) can be used in a wide variety of products and services.98 Therefore, diversification derived from sharable inputs and economies of scope may have a much larger impact in digital markets. Van den Boom and Samranchit (2022) propose a theory of harm in which the efficiencies created by the effects of complementarity and economies of scope between products and ser- vices in digital ecosystems can lead to long-run foreclosure. Although such efficiencies are bene- ficial to consumers in the short run, consumers may be harmed in the long run due to weakened competition. Thus, it would be insufficient to clear a conglomerate merger in digital platform mar- kets based on short-run efficiency gains.99. Rhodes and Zhou (2019) find that, after a single con- glomerate merger, an equilibrium exists in which consumers first search at the conglomerate firm because of consumption synergies due to the creation of a one stop shop (consumers do not have to visit other suppliers to shop for different products/services). For sufficiently low search costs (e.g. e-commerce), only a single conglomerate merger is profitable and consumers are worse off with the merger.100 Despite new theories of harm and increased competition concerns, policy makers should strive to balance potential efficiencies and risks of conglomeration in digital markets since digital platforms bring substantial benefits to both developed and developing economies.101 The key challenge is to preserve the positive externalities that create value in digital markets, while ensuring that these externalities can be harnessed by all players in a competitive, vibrant ecosys- tem that benefits consumers and businesses. Open and competitive digital platform markets can 94 See generally Kamepalli, S. K., Rajan, R. G., & Zingales, L. (2021). Kill zone. SSRN Scholarly Paper. Available at https://doi. org/10.2139/ssrn.3555915 95 See generally Koski, H., Kässi O., and Braesemann F. (2020). Killers on the Road of Emerging Start-Ups - Implications for Market Entry and Venture Capital Financing. ETLA Working Papers. Available at https://ideas.repec.org//p/rif/wpaper/81. html. 96 See generally Chadha, M. (2019). Digital Conglomerates and EU merger control—Analysis of the Leverage Theory of Harm. SSRN Scholarly Paper. https://doi.org/10.2139/ssrn.3563485 97 See generally Bourreau and Streel, A.D. (2019), supra note 52. 98 See generally Chadha (2019), supra note 96. 99 See generally Van den Boom, J & Samranchit, P. (2022), Digital Ecosystem Mergers in Big Tech—A Theory of Long-Run Harm with Applications, Journal of European Competition Law & Practice, Volume 13, Issue 5, Pages 365–371 100 See generally Rhodes, A., & Zhou, J. (2016). Consumer search and retail market structure. SSRN Electronic Journal. Available at https://doi.org/10.2139/ssrn.2730846 101 See generally Fu, X., Avenyo, E., & Ghauri, P. (2021). Digital platforms and development: A survey of the literature. Innovation and Development, 11(2–3), 303–321. Available at https://doi.org/10.1080/2157930X.2021.1975361. 49 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges incentivize private sector investments and innovation.102 Competitive digital markets allow new digital businesses and entrepreneurs to enter, invest, and compete on a level playing field and develop higher productivity.103 For example, in Europe, economies with a higher share of firms that use e-commerce platforms are characterized by a lower Herfindahl Index of concentration, based on the number of workers.104 Competitive digital environments can reward efficient and innovative firms and ensure access to affordable and quality products and services. Additionally, digital plat- forms can either disrupt markets themselves or help others take on large incumbents.105 Success- ful platforms expand into other business lines and often provoke ‘legacy’ operators to catch up. The next section reviews trends in conglomerates in offline and online markets in East Asian countries. And Section III discusses the lessons learned from how East Asian authorities have approached conglomerate M&A transactions in digital markets though both traditional anti- trust tools and ex ante regulation. 3.2 Selected EAP countries experience on merger control review in digital markets Competition regulatory and institutional frameworks in the EA region have been strengthened in the past decades, but significant differences persist among the five countries reviewed regarding mandates and implementation. Korea was the first of the EA-5 countries to approve a competition law and set a competition authority. Since the late 90s, competition regulation has been approved in Thailand (1999 reformed in 2017),106 Viet Nam (2004 later reformed in 2019),107 102 See generally Bloom, N., Sadun, R., & Reenen, J. V. (2012). Americans do it better: Us multinationals and the productivity miracle. American Economic Review, 102(1), 167–201. Available at https://doi.org/10.1257/aer.102.1.167.; Inklaar, R., Timmer, M. P., & Van Ark, B. (2008). Market Services Productivity Across Europe and the US. In G. De Mnil, R. Portes, & H.-W. Sinn (Eds.), Economic Policy (pp. 141–194). Blackwell Publishing Ltd.; World Bank (2016) World Development Report 2016: Digital Dividends. Washington, DC: World Bank. doi:10.1596/978-1-4648-0671-1. License: Creative Commons Attribution CC BY 3.0 IGO 103 See generally Aghion, P., Blundell, R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects of entry on incumbent innovation and productivity. Review of Economics and Statistics, 91(1), 20–32. Available at https://doi.org/10.1162/ rest.91.1.20; Aghion, P., Burgess, R., Redding, S., & Zilibotti, F. (2005). Entry Liberalization and Inequality in Industrial Performance. Journal of the European Economic Association, 3(2), 291–302. Available at https://doi. org/10.1162/1542476054472973 104 See generally Hallward-Driemeier, M., Nayyar, G., Fengler, W., Aridi, A., & Gill, I. (2020). Europe 4.0. World Bank Group, License: CC BY 3.0 IGO. Available at https://openknowledge.worldbank.org/handle/10986/34746 License: CC BY 3.0 IGO. 105 In a global survey of the Economist, two out of three firms report competitive pressure from digital innovations, 2014. Source: Economist 2015. The data are based on a global survey with 561 respondents. 106 See generally Thailand’s Trade Competition Act B.E 2542 (1999) and its latter reform the Trade Competition Act, B.E. 2560 (2017). 107 See generally Viet Nam Competition Law No. 23/2018/QH14 (2019) 50 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges and Malaysia (2010).108 The Philippines approved the Competition Law in 2015,109 being the last of the analyzed countries to set a competition framework. Competition laws in the five countries reviewed establish: (i) a ban of hard-core cartels;110 (ii) the prohibition of abuse of dominance;111 and (iii) obligatory merger control systems,112 except for Malaysia which does not have an economy wide merger control system although sectoral regulators including energy, telecommunications, and aviation authorities can review the competitive impact of mergers and acquisitions.113 Table 3.Competition laws and competition authorities in selected countries in Asia. Year of Year of specific Year when Age of the enactment act/law for the the authority current of current creation of the started agency competition law authority operations Australia 1974 1974 1974 28 Cambodia 2021 2021 2022 1 China 2007 2007 2008 15 India 2003 2003 2003 20 Indonesia 1999 1999 2000 23 Korea 1980 1981 1981 42 Malaysia 2010 2010 2012 11 Myanmar 2015 2015 2017 6 Pakistan 2010 2007* 2007 16 Philippines 2015 2015 2016 7 Thailand 2017 1999 1999 1 Viet Nam 2019 2004 2006 17 Average age of the agency 15.58 Source: Fostering Competition in the Philippines: The Challenge of Restrictive Regulations (World Bank 2018). The current Com- petition Act of Pakistan was enacted after the Competition Commission of Pakistan started operations based on the original Competition Ordinance NO. LII passed in 2007. 108 See generally Malaysian Competition Act 2010, Act 712. 109 See generally The Philippine Competition Law (R.A. 10667) (2015) 110 See at Thailand’s Trade Competition Act supra note 106, sections 54- 56; Viet Nam Competition Law supra note 109, chapter III; Malaysia’s Competition Act, supra note 108, Chapter 1109; The Philippine Competition Law supra note 109, section 15; Korea’s Monopoly Regulation and Fair Trade Act, Law No. 3320, December 31, 1980, Chapter V. 111 See at Thailand’s Trade Competition Act, supra note 106, section 57; Viet Nam Competition Law supra note 109, article 27; Malaysia’s Competition Act 2010, supra note 108,chapter 2; the Philippines Competition Law supra note 109, section 14; the Korea’s Monopoly Regulation and Fair Trade Act, supra note 110, Chapter II. 112 See at Thailand’s Trade Competition Act, supra note 106, section 51 of; Korean Monopoly Regulation and Fair Trade Act supra note 110, Article 7; Viet Nam Competition Law, supra note 109, the Philippines Competition Law, supra note 109 section 16. 113 See generally Malaysian Aviation Commission (MAVCOM), MAVCOM Greenlights Malaysia’s First Competition-related Merger, (2021), available at https://www.mavcom.my/en/2021/09/09/mavcom-greenlights-malaysias-first-competition- related-merger/; BK, Soniya. (May 23, 2022). Malaysia - The Introduction of Merger Control Regime and The Impact on Businesses. Conventus Law (blog), (May 23, 2022). https://conventuslaw.com/report/malaysia-the-introduction-of- merger-control-regime-and-the-impact-on-businesses/. 51 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 12. Basic elements of competition agencies’ substantive mandates Ex‒ante powers Ex‒post powers Provisions of exemptions (individual/ Elimination of anticompetitive block exemptions) practices Ability to exempt from the prohibition of the Ability to uncover, eliminate and sanction cartels law those practices considered anticompetitive and other anticompetitive agreements as well when their benefits outweigh their negative as abuses of dominance. Authorities may order impact. Cartels and abuses of dominance should remedies to restore competition to the market. not benefit from exemptions. ex-ante merger control Ex-post merger control Ability to review certain mergers and acquisitions In certain jurisdictions mergers are reviewed (typically above pre-established thresholds) ex post, including those that did not have to before an economic concentration takes place be notified in the first place. Ex-post merger to limit their potential negative effects either reviews may be voluntary or obligatory. by blocking operations or submitting them to conditions/remedies. In most cases, pre-merger notification is obligatory. Advocacy initiatives Ability of embed competition principles in markets through non-enforcement initiatives such as by conducting market studies, reviewing/issuing opinions on laws and regulations that may hinder competition, cooperating with other market institutions, building capacity and rising awareness on competition issues among public and private stakeholders. Competition advocacy includes both ex ante and ex post initiatives. source: World Bank. (2021). World Development Report (WDR) 2021: Data for Better Lives. Washington, DC: World Bank. In terms of merger control, competition authorities in Korea, the Philippines, Viet Nam114 and Thailand115 can either prohibit mergers if they significantly lessen competition or approve them, with or without conditions. Conditions or remedies to limit negative effects of mergers can be structural or behavioral, except for Thailand, where the Competition Authority can only impose behavioral remedies.116 Structural remedies require divestments while behavioral remedies estab- lish obligations for the merging parties. Structural remedies are preferred as they can eliminate competition concerns ex ante, while behavioral remedies require costly monitoring and eventually will be phased out. In Malaysia, sector regulators have similar powers.117 114 See Viet Nam Competition Law supra note 107, article 41. 115 See Thailand’s Trade Competition Act, supra note 106, Section 52 116 See Thailand’s Trade Competition Act, supra note 106, Section 60. 117 See Malaysian Aviation Commission, Guidelines on Substantive Assessments of Mergers. April 20, 2018. Available at https://www.mavcom.my/wp-content/uploads/2018/04/Guidelines-on-Substantive-Assessment-of-Mergers.pdf 52 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges The ability to review mergers is based on thresholds triggering notification to competition authorities, which in some countries still remain problematic. International experience recom- mends the use of objective thresholds over those based on market shares as well as a combination of aggregate and individual notification threshold linked to local markets.118 However, none of the EA-5 countries follow this approach in full and only Thailand has a combined local turnover thresh- old in place, which is relatively low (Figure 13. (a) and Table 4). In addition, Korea does not have an individual local turnover for all economic concentrations, only individual global turnover119, and when individual local thresholds exist, they remain quite high as compared to peers, especially in Viet Nam and the Philippines (Figure 13 (b)). Figure 13. Relationship Between Merger Notification Threshold Sizes and GDP a. Combined local b. Individual local turnover/asset thresholds turnover/asset thresholds 25 20 log notification treshold log notification treshold philippines japan 18 vietnam 20 indonesia thailand china china individual local thailand combined local 16 singapore 15 14 10 12 22 24 26 28 30 22 24 26 28 30 log gdp in usd log gdp in usd 95% CI fitted values observed values 95% CI fitted values observed values Source: World Bank staff elaboration based on data from the World Bank Group Merger Notification Thresholds and Procedures Database and World Development Indicators (WDI). 118 OECD, (2011) Peer Review of Competition Law and Policy in Honduras. DAF/COMP/LACF (2011) 3, p. 30: “the better practice is to define size thresholds separately for each merging party, in order to avoid a situation in which a concentration must be reported in which a relatively large enterprise that itself exceeds a threshold makes a de minimis acquisition of a much smaller enterprise, which is unlikely to have a significant effect on competition.” The use of combined thresholds alone leads to requiring large firms to notify even very small acquisitions that are not expected to lead to any significant anticompetitive effects. Thresholds for individual parties ensure that both parties of a merger that is subject to notification are of significant size. 119 See Article 18(3) of the Enforcement Decree of the Monopoly Regulation and Fair Trade Act requiring foreign companies a local turnover: "Foreign companies will be subject to notification when each foreign companies has sales in Korea that surpass 20 billion won" (approximately USD 15 million). 53 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Table 4. Thresholds for requiring merger notification in EA-5 countries Korea Thresholds require notification if the combined global assets of one of the par- ties exceed KRW 300 billion (approximately USD 231 million), and the global assets of the other party are at least KRW 30 billion (approximately USD 23 mil- lion). In 2021, Korea incorporated subsidiary thresholds120 based on the value of the transaction at KRW 600 billion (approximately USD 462 million) or the market activities of the target firm. 121 Viet Nam Thresholds are based both on market share and turnover, with notification re- quired if the combined market share of the merging parties exceeds 30% or the individual local turnover of at least one of the parties (or the group they belong to) exceeds VND 3,000 billion (approximately USD 130 million). 122 Thailand Threshold of THB 1 billion (approximately USD 31 million) both for individual turnover as well as for combined turnover of merging parties. 123 The Notification is triggered if the transaction value or the size of the parties in- Philippines volved exceeds PHP 2.2 billion (approximately USD 45 million), alongside meet- ing specific market share thresholds or criteria defined by the Philippine Com- petition Commission. 124 Malaysia Sectoral thresholds for specific industries such as communications, aviation, energy, and finance, with varying thresholds based on assets, revenue, or sec- tor-specific criteria. 125 Viet Nam, Thailand,126 Korea, and the Philippines127 all have simplified merger procedures available, which are applicable to conglomerate mergers, among others. Viet Nam provides for a simplified merger filing procedure for transactions that meet certain threshold criteria, such as the combined market share of the parties being below a certain level,128 while Thailand offers a simplified procedure for merging parties based on financial and market share considerations. Ko- rea has established certain provisions for transactions involving a subsidiary acquiring all or part of the shares of its parent company, or when a conglomerate’s combined market share is below certain levels. The Philippine Competition Commission (PCC) provides a fast-track merger review 120 These thresholds are subsidiary to the main one in the sense that they only apply in case the concentration is not captured by the main threshold. 121 See generally KFTC Amendments to M&A Review Standard and M&A Notification Guidelines (2020) which include number of users, investment in R&D and R&D facilities in the country. 122 See Viet Nam’s Decree 35. (March 24, 2020). Detailed Regulations for Implementation of the Law on Competition, No. 35/2020/ND-CP, at article 13 (b). 123 See generally Thailand (2018) Announcement from the Office of Trade Competition Commission - Topic: Criteria, Procedures and Conditions in Requesting and the Permission for Business Mergers B.E. 2561. 124 See generally The Philippines Competition Commission (2018) Guidelines on The Computation of Merger Notification Thresholds. Available at https://www.phcc.gov.ph/guide-to-computing-merger-notification-thresholds/ 125 See Malaysian Aviation Commission, Guidelines, supra note 117. 126 See generally Thailand’s Announcement supra note 121. 127 See generally, The Philippines Competition Commission. PCC Rules on Expedited Merger Review Procedure. March 26, 2019. Available at https://phcc.gov.ph/wp-content/uploads/2019/04/PCC-RULES-ON-EXPEDITED-MERGER- REVIEW_2019.03.27.pdf 128 See at Viet Nam’s Decree 35, supra note 126, article 11.3 (a). 54 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges process for transactions that aren’t expected to raise competition concerns, with the target firm holding a market share below 20% in relevant markets. Operations below notification thresholds, often the case for digital mergers, can still be re- viewed through several mechanisms. In Korea, the Fair Trade Commission can initiate ex officio review, or parties may request a confirmation letter.129 Viet Nam’s Competition Commission re- quires notification if certain market share or asset value thresholds are met, but may investigate non-notifiable transactions.130 The Philippine Competition Commission may initiate a review if it receives information or complaints about a transaction.131 Thailand has a voluntary notification regime for non-mandatory transactions but cannot oblige parties to notify.132 In terms of merger control in digital markets, competition authorities in EA-5 have faced chal- lenges of regional and even global dimensions, often using suboptimal tools. The acquisition of Uber by Grab exposed these challenges, including notification thresholds that did not capture relevant concentration operations, delayed resolutions, and limited coordination between com- petition authorities in the region. Out of the EA-5 countries, this merger had effects in Thailand, Viet Nam, the Philippines and Malaysia133 (see Box 3 for a more detailed account of the merger in the EAP region) although the latter does not have a merger control power. Even though it brought together the largest two players in ride-hailing, the transaction did not require ex ante merger notification in any of these countries. It only met ex post notification thresholds in Viet Nam, and only because Viet Nam still has a threshold based on market shares. In addition, the Philippines also reviewed the operation using its ex officio motu propio review.134 Yet, in both countries the review took place ex-post and the outcomes were relatively disappointing. In Viet Nam, the deal was considered non-notifiable and, in the Philippines, PCC remedies were not followed .135 (see Box 3 for more detail on diverse remedies imposed). 129 See at KFTC Amendments to M&A Review supra note 125. 130 See at Viet Nam Competition Law, supra note 107, Chapter V. 131 See at Viet Nam Competition Viet Nam Competition Law, supra note 107. 132 See generally Thailand’s Announcement supra note 121. 133 See generally Grab Press Center supra note 31 134 See generally Philippine Competition Commission. (2018) Decision No. 26-M-12/2018, Acquisition by Grab Holdings, Inc. and MyTaxi. PH Inc., of Assets of Uber B.V and Uber Systems, Inc. Case No. M-2018-001. Available at https://www.phcc.gov. ph/wp-content/uploads/2018/08/M-2018-001-PCC-Decision-Grab-Uber-20180810.pdf; see also Bernabe, J. (2021). Grab– Uber merger: Challenges faced by a young competition agency. Journal of Antitrust Enforcement, 8(3), 627–637. Available at https://doi.org/10.1093/jaenfo/jnaa050. 135 Since the PCC’s conditional approval of the Uber/Grab merger in 2018, the PCC has fined Grab for PHP 75 million (approximately 1.3 million dollars) for non-compliance with remedies. The latest fine came in 2023 as Grab did not comply with the PCC’s mandate of not applying unreasonable price strategies. The PCC found that Grab had committed extraordinary price increases and mandated that the company refunded the exceeding fees. Since Grab did not comply with this reimbursement the PCC imposed a PHP 9 million fine. Lack of compliance has also led to PCC extend the monitoring of remedies for 3 extra years. See generally The Philippines Competition Commission. (May 15, 2023). PCC Slaps Fresh P9-Million Fine on Grab Amid Refund Delay. Philippine Competition Commission. Available at https://www.phcc.gov. ph/press-releases/pcc-slaps-fresh-p9-million-fine-on-grab-amid-refund-delay/; Although the VCCA recommended that the merger between Grab and Uber was blocked the Competition Council, the Authority which powers to decide over the merger, decided that the merger was not a combination since Grab did not take control of Uber since it did not participate in the management of Uber Viet Nam and did not hold any voting rights in its management. Saigoneer (June 20, 2019). Viet Nam Officials Find No Competition Violations in Grab-Uber Deal. Saigoneer. Available at https://saigoneer.com/saigon- technology/16768-officials-rule-no-violations-in-grab-uber-deal; Nguyen, D. (June 24, 2019). Why Viet Nam bucked the trend on Grab-Uber deal. VnExpress. Available at https://e.vnexpress.net/news/business/companies/why-vietnam-bucked- the-trend-on-grab-uber-deal-3942842.html 55 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Box 4. Analysis of the Uber and Grab merger in the East Asia Pacific region In March 2018, Grab, the leading Singaporean ride-hailing platform, acquired the Southeast Asian operations of Uber, the second largest player in the region. Grab integrated Uber’s ride- sharing and food delivery business into its multi-modal transportation and fintech platform. The merger had effects in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thai- land, and Viet Nam.136 Of the competition authorities in the affected countries, only the Philippines and Singapore fully analyzed the merger. Myanmar, Cambodia and Thailand did not review the merger since they did not have competition law or authority at the time of merger. Malaysia does not have an economy wide merger notification mandate under its competition law, and consequently did not have faculties to review the merger. Viet Nam’s competition authority concluded that the acquisi- tion of Uber by Grab was illegal since the combined market share after the merger exceeded the 50% threshold. Nonetheless, the decision by the VCCA was reversed by the Competition Council. The Council considered that the transaction was not an acquisition under the 2004 competition act.137 The Competition Commission of Indonesia concluded that the transaction was not a notifi- able merger based on the view that there would be no transfer of control from Uber Indonesia to Grab Indonesia since Uber Indonesia’s corporation would still exist. Th ex-post analysis of Competition and Consumer Commission of Singapore (CCCS) conclud- ed that the merger significantly lessened competition in the ride-hailing markets and im- posed behavioral and structural remedies. The CCCS argued that the merger would significantly increase barriers to entry in the market, since low levels of multihoming (the use of more than one platform, e.g. a driver obtaining assignments from both Uber and Lyft) by drivers due to exclusivity agreements imposed by Grab, high switching costs, and network effects in the market increased the risk of “tipping” in favor of the merged company. The CCCS concluded that the merger would lead to actual or potential price increases and reduced quality, and that Grab’s imposition of ex- clusive contracts on drivers, car fleets and rental companies would substantially lessen compe- tition. The Philippines Competition Commission also analyzed the merger ex-post after a motu pro- prio process, since the parties argued that the merger did not reach the notification thresh- olds. The PCC imposed interim measures that ordered the parties to maintain their operations separate until the review was concluded. However, the parties did not comply with this measure 136 See generally Grab Press Center supra note 31 137 See generally Oguchi, H. (2022). Viet Nam: Merger control - three years after the grab/uber case. Nishimura & Asahi (blog). Available at https://www.nishimura.com/en/knowledge/newsletters/20220810-87201. 56 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges and completed the operation. The analysis of the PCC resembled the one of the CCCS. The PCC analyzed the actual and potential price increases in the market post-merger, finding that despite the increased supply of drivers available in Grab post-merger, prices had increased when they had been flat or declining pre-merger. The PCC concluded that Grab had 93% of on-demand car-based private transportation online booking services, and that the transaction created or strengthened Grab’s dominance in the ride-hailing market, substantially lessening competition. The analyses of the PCC and the CCCS were similar, but the authorities differed in the impo- sition of remedies. Both authorities imposed restrictions on exclusive contracts on drivers, in an attempt to increase multihoming and reduce barriers to entry for potential ride-hailing platforms. Both authorities imposed pricing remedies. The PCC imposed a more rigid system establishing maximum price increases, while the CCCS required that Grab maintain its pre-merger pricing algo- rithm and driver commission rates to avoid excessive price and commission surges, which allowed for more flexibility. Only Singapore imposed a structural remedy on the merging parties as part of its decision, ordering Uber to sell its car rental business to any potential competitor that makes a reasonable offer. The Grab-Uber merger proved to be a challenge for younger competition authorities in the EAP region. Out of the eight countries in which the merger had effects, only two authorities fully analyzed the merger. Even in the two jurisdictions that fully analyzed the merger, they did so ex- post rather than before the merger took effect. There was no collaboration between agencies, leading to different remedy frameworks and no comprehensive analysis of the regional effects of the merger in spite of the mergers having a regional dimension. This is a gap that merging parties could use to their benefit, thus the need for regional cooperation mechanisms between market institutions. Source: World Bank Group. 2018. Malaysia’s Digital Economy: A New Driver of Development. Washington, DC: World Bank. 57 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Thus, competition authorities are working towards stronger frameworks to address the chal- lenges of conglomerate mergers in digital markets. In 2022 the Malaysian Competition Commis- sion proposed an amendment to the 2010 Competition Act that includes an economy wide merger review framework.138 In the Philippines, the PCC has recently approved “Guidelines for the Motu Proprio Review of Mergers and Acquisitions in Digital Markets.” The Guidelines identify the charac- teristics of digital mergers likely to trigger a motu proprio review, including transactions that may significantly reinforce network effects, digital conglomerate transactions involving digital players, and parties under competition investigation.139 In Korea, The KFTC also amended its merger notifi- cation regulation to include a threshold on the value of the transaction in order to capture digital mergers with target firms with low annual revenue. Besides merger regulation competition, authorities have also faced enforcement challenges associated with digital markets; nonetheless, experience remains relatively slim and heavily focused on abuse of dominance cases. Only Korea and Malaysia have issued decisions on an- titrust cases in digital markets. In both countries, the focus has been on exclusionary practices implemented by digital dominant players, including exclusive dealing, anticompetitive licensing practices and self-preferencing. For instance, absent ex-ante merger review powers, the MyCC sanctioned Grab ex post considering that preventing advertising alternative delivery services by its drivers constituted an abuse that limited the development of other e-hailing platforms. Along similar lines, MyCC also sanctioned the company providing access to the National Single Window for requiring users to access through its own electronic mailbox. Regarding licensing practices, the KFTC concluded in 2021 that Google had banned manufacturers from releasing devices that run on rival operating systems as a prerequisite for licensing Play Store. Finally, the KFTC sanc- tioned Naver, a popular search platform, for altering its algorithm to preference products offered on its own “open market.” This behavior harmed non-associated vendors whose products were demoted to lower positions on Naver’s ranking. The integration of Naver into different markets was key for its ability to self-preference. These cases are strongly related to the ability of digital con- glomerates to leverage their position in other markets. The WBG digital antitrust database con- firms that competition cases in the region have mostly focused on inter-platform competition and pricing in high income countries as compared to offline vs online competition in middle income ones. Critical aspects for digital conglomerates, notably tying, third party access to platforms and the use of data, remain relatively unexplored in most countries. (Figure 14.) (See Table 5 for more detail on abuse of dominance cases in Korea and Malaysia). 138 See at Malaysia Competition Commission (MyCC)(2022). Salient Points of the Proposed Amendments to the Competition Act 2010 (Act 712), page 11, available at https://www.mycc.gov.my/sites/default/files/Salient%20Points%20of%20the%20 Proposed%20Amendments%20of%20Act%20712%20%5B25.4.22%5D.pdf. 139 See generally The Philippines Competition Commission. Draft Guidelines for the Motu Proprio Review of Mergers and Acquisitions in Digital Markets. May 3, 2023. Available at https://www.phcc.gov.ph/call-for-comments-pcc-draft- guidelines-for-the-motu-proprio-review-of-mergers-and-acquisitions-in-digital-markets/ 58 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 14. Factors assessed in competition cases in EAP countries Inter-Platform Competition 25% 43% Price Assesments of goods and services 43% Exclusive dealing 25% 29% Offline vs. Online 21% 50% Multihoming 14% 25% Network Effects 21% Use of data 14% 25% Access to platform to third party providers 14% Data Transparency 7% 25% Degree of vertical integration 7% 25% Partnerships leading to competition constraints 14% Envelopment/tying 14% Winner takes most dynamics 7% Data as essential facility/barrier to entry 7% Zero price assessment Underlying alghoritms/code Lack of adequate regulation Data protection/data privacy 0 0,1 0,2 0,3 0,4 0,5 0,6 MIDDLE INCOME high INCOME Source: Global Digital Antitrust Database – World Bank Group (The database includes 18 cases from Australia, China, Indonesia, Japan, Korea, The Philippines, Singapore, Taiwan, and Viet Nam) 59 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Table 5. Digital Abuse of Dominance cases in the EA-5 countries Country Brief description Remedies/conditions Korea Most-favored nation clauses (MFN) (2020): Yogiyo uni- Cease practice and laterally implemented the minimum price guarantee policy not implement MFN to the delivery restaurants registered with its app. The clauses. The KFTC also company prohibited the restaurants from charging cheap- imposed a fine of USD er prices on food delivered via other sales routes such as 382 million ordering food on the phone or other delivery apps. Conditional licensing (2021): KFTC found that Google Cease practice. The banned smartphone manufacturers from releasing devic- KFTC imposed a USD es that run on rival OS as a prerequisite for licensing Play 176.64 million fine Store and early access to Android source code, blocking the market entry of fork OS which are rivals to Android. Differential treatment (2021): Naver Corp., the nation’s Cease practice and a biggest search engine, manipulated search algorithms in fine of USD 23 million. favor of the company’s online shopping site. Most-favored nation clauses (MFN) (2021): Five accom- During investigation, modation platforms were accused of abuse of dominance these platforms vol- by imposing most-favored nation clauses (MFN). untarily removed MFN clauses or replaced wide MFN with narrow MFN Malaysia Exclusivity Agreements (2019): MyCC found that Grab Cease practice and a had abused its dominant position by imposing restrictive USD 20.5 million dollar clauses on its drivers, preventing them from promoting fine and providing advertising services for the latter’s compet- itors. Grab appealed the case, but Malaysia’s High Court dismissed Grab’s request. Exclusivity Agreements (2019): MyCC issued the decision Dagang Net needs to that Dagang Net had infringed Section 10(1) of the Com- cease and to refrain in petition Act 2010 by engaging in exclusive dealing through the future, from engag- the imposition of exclusivity clauses on software providers ing in exclusive dealing. of the NSW from October 2015 to November 2017. Refusal to supply (2021): Dagang was accused of abusing No remedies were its dominance for refusing to supply electronic mailboxes imposed to the end users of the System Maklumat Kastam (Customs Information System). The authority found that Dagang Net did not significantly prevent, restrict or distort competi- tion. No refusal to supply infringement was found. Source: World Bank Global Antitrust Database 60 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges However, like in many countries across regions, ex ante regulation has proved a necessary complement to prevent anticompetitive behavior of digital operators. First, Korea approved a reform to the telecommunications act to prohibit the tying of services,140 targeting BigTech firms like Google and Apple that required app developers to use their own payment systems platforms with commissions of up to 30%. This scenario was very similar to the Microsoft case from the late 90’s, which eventually resulted in Microsoft stopping the tying of its operative system and web browser. The approach of Korea was to end/prevent this sort of practice through ex ante regula- tion. BigTech can still use their payment systems but have to allow app developers to use alter- native platforms, thus increasing pressure to charge lower prices/commissions. Additionally, the Korean Communication Commission issued guidelines specifically prohibiting self-preferencing by digital platforms.141 Through the Electronic Transaction law, Thailand imposed an obligation for digital platforms to notify to the Electronic Transaction Development Agency before they start op- erating in the country. As digital conglomerates develop and grow in the region, ex-ante regulation could become a key tool to limit potential anticompetitive behavior, especially in jurisdictions with younger competition authorities. Box 5. Public Private Partnership in the EAP-5 countries Viet Nam’s Public-Private partnership framework started in the 90’s as a way of allowing foreign in- vestment in Viet Nam. The Law on Foreign Investment allowed for Build-Operate-Transfer projects. 142 The framework was later updated by several Decrees that allowed for new ways of participation of private enterprises. In 2021 Viet Nam approved the PPP law which consolidates the different decrees previously issued. The Law includes the sectors that are eligible for PPP investment, in- cluding transportation, water supply, power transmission, information technology, health, and education. Each sector imposes a different minimum investment and equity contribution thresh- old.143 161 PPPs have taken place in Viet Nam from 1990 to 2022, for a total of more than 36 billion dollars.144 140 See generally Korea’s Amended Telecommunications Business Act. August 31, 2021. 141 See generally Korea. (December 22, 2022) Enforcement Decree of the Telecommunications Business Act. Presidential Decree No.33038. Available at https://www.law.go.kr/LSW/eng/engLsSc. do?query=ENFORCEMENT+DECREE+OF+THE+TELECOMMUNICATIONS+BUSINESS+ACT#liBgcolor0 142 See Articles 2.16 and 19.b of the Viet Nam Law on Foreign Investments of 1992. 143 See Articles 4.1 and 4.2 of Viet Nam’s PPP law. Available at https://ppp.worldbank.org/public-private-partnership/library/ ppp-laws-concessions-laws-vietnam 144 Country Snapshot: Viet Nam. (n.d.). World Bank Group; World Bank Group. Retrieved September 1, 2023, available at https://ppi.worldbank.org/en/snapshots/country/vietnam 61 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Thailand first introduced a PPP framework through the 1992 Private Participation in State Under- takings Act. The system was further reformed in 2013 and 2019. The act not only defines the sec- tors and conditions under which PPP projects can develop, but it creates the State Enterprise Pol- icy Office which acts as the implementing authority of the regulation and is in charge of proposing plans, providing advice on PPP development, and reporting problems related with the implemen- tation of the regulation.145 From the 1990 to 2022, 187 PPP projects were developed in country with an investment of over 44 billion dollars. Korea introduced its PPP framework in 1994. The current framework operates under the 2019 Act and the 2023 Basic Plan for Public-Private Partnership in Infrastructure. The law includes a broad and encompassing view of what infrastructure entails, allowing for PPP projects in a diverse array of areas from child welfare to smart cities. PPP projects in Korea for 2023 will amount to KRW 34.1 trillion divided in 80 projects.146 The Philippines was one of the first countries in Asia to develop a BOT framework in the early 90’s. The framework was later amended to provide additional PPP variants, including build-and-trans- fer, build-own-and-operate, build-lease-and-transfer, and build transfer-and-operate. The latest reform took place in 2012. Since 1990 the Philippines has undertaken 185 PPP projects amounting to over 62 billion dollars. Malaysia has not approved a specific PPP law. The projects are conducted based on policies and guidelines issued by the government authorities related to PPP investment. In 2009 the President set up a PPP united (UKAS) that is in charge of developing guidelines and coordinating projects. Since 1990 Malaysia has developed 127 PPP projects for a total of 53 billion dollars. 3.3 The way forward The growth of digital conglomerates can have positive effects on the economy, including through increased efficiency, lower prices, innovation and development of new products and services that bring enormous benefits to consumers. But with these opportunities comes a challenge; how to maintain competitive digital markets? Authorities have a choice and could con- sider a number of policy options to limit the risks associated with digital conglomerates while 145 Thailand. Public-Private Partnership Act B.E 2562 (2019). Available at https://www.sepo.go.th/tinymce/plugins/ filemanager/thumbs//3.%20PPP-ACT-2-9-62-v1-1.pdf 146 Korea. (2023) The Basic Plan for Public-Private Partnership in Infrastructure. Available at https://www.kdi.re.kr/kdi_eng/ kdicenter/basic_plans_for_ppp.pdf 62 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges enabling players and entrants with new business models to thrive. The ultimate objective is to identify policy directions that could foster the development of a competitive data economy that doesn’t offset the benefits achieved through conglomeration. In terms of merger control, given the ability of digital players to connect products and mar- kets, lack of overlapping activities has become a less meaningful criteria to rule out prob- lematic operations ex ante. The analysis of digital conglomerate mergers is evolving as digital operators grow and regulators look for new tools to deal with the potential anticompetitive effects of conglomerate mergers. This creates a need to reassess the traditional approach to conglom- erate mergers when they involve digital operators, especially by screening for problematic digital mergers and submitting these digital conglomerates mergers to stricter scrutiny in the form of full, as opposed to simplified reviews. Stronger analysis of data value and network effects is also essential to better understand the impact of mergers involving digital operators. 147 Without an analysis of the dynamic effects of data or network effects, among others, competition authorities remain limited in their ability to build solid theories of harm.148 Competition Authorities like the CCCS in Singapore include data and network effects as a potential barrier to entry that should be assessed when analyzing a merg- er’s effects. Korea and the Philippines are also following a similar path.149 Yet, concerns are not only analytical; traditional merger review procedures and tools, from notification obligations to remedies, need to be reshuffled to address digital mergers, es- pecially conglomerate ones. To this end, several reforms need to be implemented. First, com- petition authorities should be provided with broader mandates to review digital conglomerate mergers. This can be achieved through different means such as revised pre-merger notification thresholds,150 reinforced notification obligations for dominant players in digital markets, also 147 Examples of this concern include the OECD, Data portability, interoperability and digital platform competition, OECD (2021) Competition Committee Discussion Paper , p. 15 in which it states that “Data are also a contributor to market power in digital platform markets, not only because data are important in these markets, but also because of the characteristics they exhibit: economies of scale and scope as well as network effects.” The House Judiciary Committee. Majority staff report and recommendations Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, 2020, p. 51 also highlights the importance of data stating that “The best evidence of platform market power therefore is not prices charged but rather the degree to which platforms have eroded consumer privacy without prompting a response from the market.” 148 The KFTC in a submission to the OECD stated that a full analysis of data and network effects is essential to properly assess whether a company is dominant in digital markets. See at OECD. (2022) The Evolving Concept of Market Power in the Digital Economy – Note by Korea, DAF/COMP/WD(2022)26, p. 3. Available at https://one.oecd.org/document/DAF/COMP/ WD(2022)26/en/pdf 149 See, for example, The Competition Authority of Kenya Revised Guidelines on Relevant Market Definition in which it includes two and multi -sidedness, non-price markets, and the relevance of data to its merger analysis. Available at https://cak. go.ke/sites/default/files/Guidelines%20on%20Relevant%20Market%20Definition%20(1).pdf. 150 For example, Korea has incorporated the value of the transaction and the relevance of the targeted company for R&D and the internal market into its notification thresholds. This would facilitate the KFTC’s intervention in analysis of, for example, acquisitions of nascent digital platforms. See generally KFTC Amendments to M&A Review supra note 125. The CCCS has included network effects, multi-sided markets, and data as a key supply in digital markets to its Guidelines on the Substantive Assessment of Mergers which became effective on February 1, 2022. Available at https://www.cccs.gov.sg/-/ media/custom/ccs/files/legislation/ccs-guidelines/guidelines-in-chapters-with-layout-aug-2017/4-ccs-guidelines-on-the- substantive-assessment-of-mergers-2016.pdf?la=en&hash=B713B2778A3B809330408E56D52EBA1F07AE1D61 63 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges known as gatekeepers,151 as well as the limitation of notification exemptions and simplified merg- er notification procedures for digital conglomerate mergers. Second, better targeting of interim measures and remedies is necessary to preserve competition in the markets involved. Second, better targeting of remedies is necessary to preserve competition in the markets involved, includ- ing the use of behavioral remedies rather than structural ones. The use of new technologies in data analytics can also make monitoring those remedies less costly for authorities. Interim measures through simplified procedures are a complementary tool once a merger has been concluded to prevent irreparable harm in digital markets.152 The characteristics of digital ecosystems and their challenges to competition might require additional ex ante regulation to complement antitrust. Depending on the level of competition risks in a given market and institutional country context, this could imply not only the introduction of certain obligations for categories of undertakings, such as dominant platforms or conglomer- ates, but also the design of sector- specific regulatory frameworks to address the challenges of digital conglomerates and digital ecosystems.153 Limitations of tying and access requirements are examples increasingly found in telecommunications and financial sector rules.154 These frame- works need to be designed to address specific competition risks in the country context, set obli- gations that are proportionate and consider institutional capacity for enforcement, to avoid unin- tended negative effects on users and the development of the sector. Institutional frameworks to address comprehensively the challenges of digital conglomer- ates and stronger cooperation among market institutions is also key to foster better market dynamics. In addition to competition, digital markets raise multiple concerns, from taxation to privacy and consumer protection. Coordinating these aspects requires well-designed and innova- tive institutional frameworks, that could include institutions with specific digital regulation man- 151 The E.U.’s Digital Markets Act, established an obligation for Gatekeepers to inform the E.U. Commission of any intended concentration in the digital sector, including those that increase data collection capabilities, irrespective of whether the operation complies with the thresholds for notification. See European Union. (2022) Digital Markets Act. EUR-Lex - 32022R1925 – EN. Available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022R1925. Similarly, the Turkish Competition Authority amended its merger regulation increasing notification thresholds, which included an exception for technology-related companies that would now be mandated to notify any transaction involving digital entities developing R&D or providing services to Turkey based users. See Turkish Competition Authority, Communiqué No. 2010/4 on Mergers and Acquisitions Subject to the Approval of the Competition Board, amended on March 4, 2022. 152 An example of simplified interim measures can be found in the 10th Amendment to the German Act on Restraints in Competition, in which Germany facilitated the procedure through which the Bundeskartellamt can impose interim measures. The amendment is available at https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/ Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html 153 See generally Australia. (2021) Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021, which regulates the publication of content in social media and search platforms and establishes a mandate to compensate publishers for their content when shared in the platform. Available at https://www.accc.gov.au/by-industry/ digital-platforms-and-services/news-media-bargaining-code/news-media-bargaining-code#:~:text=The%20Treasury%20 Laws%20Amendment%20(News,a%20significant%20bargaining%20power%20imbalance. 154 The Colombian Superintendency of Industry and Commerce (SIC), has taken action to promote competition and entry in the financial market. Among the measures undertaken, it has prohibited the bundle of financial products and facilitated access by Fintech providers. See at IMF & World Bank. (2022). Colombia, Detailed Assessment of Observance. (Financial Sector Assessment Program IMF Country Report No. 22/135), p. 12. Available at http://www.imf.org/external/np/fsap/fssa. aspx 64 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges dates.155 Moreover, digital conglomerates participate in multiple markets, often regulated ones. This requires sector regulators to coordinate their efforts in a systematic way. For instance, multi- lateral MoUs involving the competition authority, the telecommunication regulator and the central bank have been adopted as a vehicle to deal with the challenges posed by fintech. This is the case in the Philippines.156 Additionally, competition authorities in the region should increase coopera- tion to address multijurisdictional cases and find joint solutions. 155 The United Kingdom has created the Digital Market United as part of the Competition and Markets Authority. See generally United Kingdom, Competition and Markets Authority. (2021, July 20). Digital Markets Unit. GOV.UK. Available at https:// www.gov.uk/government/collections/digital-markets-unit 156 See generally Philippine Competition Commission and Department of Information and Communications Technology. (October 7, 2021) Memorandum of Agreement: Department of Information and Communications Technology. Available at https://www.phcc.gov.ph/moa-pcc-dict/ 65 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annexes 66 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annex A. Country reviews Table 6. Summary of main findings by country Country Main findings Korea ——Korea’s digital platform ecosystem is unique, since the most important play- ers in almost all sectors are local and exhibit conglomeration strategies sim- ilar to their global counterparts. ——Offline conglomerates have used e-commerce and digital payment as their way into digital platform markets and have been considerably less active in their M&A activity in the digital ecosystem. ——Digital conglomerates pursued vertical integration through M&A of business- es in content development (e.g. video, music, comics) ——Conglomeration strategies of leading digital platforms in Korea rely heavi- ly on acquisitions. Higher activity in terms of acquisitions by conglomerates when compared to other countries. ——High level of linkages between conglomerates participating in digital sectors. ——Korean Fair Trade Commission (KFTC) has been the most active competition authority in the countries analyzed. Viet Nam ——Direct state participation in digital platform markets has supported the local development strategy of the digital economy. ——Despite SOE presence in digital platform markets and foreign investment re- strictions, foreign regional players have a very strong position, especially in e-commerce, Fintech, ride-hailing and delivery. ——Offline conglomerates that are not state-owned are barely involved in digital platform markets. ——Local conglomerates, especially state owned, enter digital platform markets through internal development of new business units/subsidiaries or joint ventures, while foreign digital conglomerates show a stronger M&A activity. ——There are important links between conglomerates participating in digital markets through common ownership, investments and strategic partner- ships. 67 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Malaysia ——Government-linked Companies (GLCs) are heavily involved in the digital plat- form market, through subsidiaries, mergers and acquisitions and seem to be leading the growth of digital platform participation of local firms. ——Despite the strong state involvement in digital platform markets, private players dominate the scene. ——Grab is the absolute leading conglomerate in digital platform markets and stands out as it has started to look at brick and mortar investments with keen interest for vertical integration in Malaysia. ——Traditionally offline private conglomerates have started to enter digital plat- form markets, with COVID 19 being a catalyzer. ——Compared to the other countries, Malaysia seems to exhibit lower levels of interlinkages between conglomerates. ——Competition policy enforcement almost non-existent, importantly due to a lack of an ex-ante notification scheme for mergers Philippines ——Offline conglomerates have focused their expansion to digital platform mar- kets through development and acquisitions of small players in e-commerce and some important investments in digital wallets. ——Some offline conglomerates have established venture capital funds focused only on digital firms.. Thailand ——Thailand had the most important and diversified participation of offline con- glomerates in digital platform markets. ——E-commerce market is dominated by two large players that belong to foreign business conglomerates, but platforms belonging to offline conglomerates are also strongly present in the market. ——Thailand stands out for the great number of linkages between conglomerates in several digital and offline markets. 1. Korea Korea’s digital ecosystem is the most developed out of the EAP-5 countries thanks to three ele- ments: the relevance of local players as the main actors in digital ecosystems, the impact of M&As on the development of digital markets, and the pioneering role of regulators in proposing avenues of change towards more competitive digital markets. Digital markets in Korea are characterized by the strong presence of local players and growing M&A activities. Korea features a distinctive digital platform ecosystem, where major players are predomi- nantly local across various sectors. The ecosystem is led by two very large digital conglomerates, which have a strong presence in multiple digital realms and have actively pursued expansion and vertical integration even into offline markets in recent years. These conglomerates exhibit a high- 68 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges ly diversified presence in digital platform markets, including online gaming, streaming, fintech, e-commerce, and car sharing. The online search engine with the largest domestic market share,157 the mobile messenger service with the largest number of users, and the leading ride-hailing app in the country all are services of these conglomerates. These digital conglomerates also have invested in several other digital platforms and services, such as online accommodation booking, and have hundreds of subsidiaries within their respective groups. The two conglomerates have also been entering offline sectors such as logistics. Figure 15. Top 25 industries Targeted in Conglomerate Mergers in Korea, 2012-2021 0 20 40 60 80 100 120 140 160 180 200 Software Publishers Motion Picture and Video Production Custom Computer Programming Services Electronic Shopping Internet Service Providers Computer Systems Design Services Internet Publishing And Broadcasting And Web Search Portals Other Motion Picture and Video Industries Television Broadcasting Newspaper Publishers Cable and Other Subscription Programming Integrated Record Production/Distribution Electronic Computer Manufacturing Book Publishers Data Processing, Hosting, and Related Services Motion Picture and Video Distribution Music Publishers Wired Telecommunications Carriers Computer Facilities Management Services All Other Information Services All Other Publishers Mail-Order Houses Wireless Telecommunications Carriers (Except Satellite) Radio Networks Other Computer Related Services Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 157 See generally Korea Joon Gang Daily. (March 14, 2021). Korea Falling to Google as Naver Loses Ground in Search. Korea Joon Gang Daily. Available at https://koreajoongangdaily.joins.com/2021/03/14/business/tech/Naver-Google-search- engine/20210314070102525.html. 69 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Conglomeration strategies of leading digital platforms in Korea rely heavily on acquisitions. In recent years, digital conglomerates in the country have actively pursued business expansion, particularly focusing on the content domain, through acquisitions. The five primary industries targeted in conglomerate mergers include software publishing, motion picture and video produc- tion, custom computer programming services, electronic shopping, and internet services (Figure 15). Large conglomerates with a presence in online streaming services and online publishing have strategically acquired firms in the webtoon and web novel markets, both in Korea and internation- ally, including the US. 158 Digital conglomerates have also merged some of their subsidiaries with leading platforms in which they did not have a strong presence, for example in digital music159 and car-sharing.160 Digital conglomerates have also been actively expanding into e-commerce and entertainment through acquisitions and investments. For example, one of the largest digital con- glomerates in Korea engaged in a share-swap deal with a leading conglomerate in the retail sector in March 2021 to boost its competitive edge in e-commerce and to compete with the leader in the sector. Offline conglomerates have embraced e-commerce and digital payment as pathways for en- tering digital platform markets, utilizing not only M&As but also forming partnerships. Con- glomerates with robust footholds in offline retail are actively cultivating their e-commerce pres- ence. As owners of department stores and significant supermarket chains, they are focusing on e-commerce initiatives to extend their online business reach. One of these con glomerates has managed to establish itself as one of the three major players in e-commerce through efforts such as forming a partnership with one of the leading digital conglomerates in the country161 and ac- quiring eBay Korea in 2021.162 To bolster their digital presence, other offline conglomerates have looked for partnerships with large foreign digital platforms. For instance, a Korean conglomerate with business units in information and communication technology (ICT), energy, and chemicals is looking to boost its e-commerce platform business by launching the Amazon Global Store on its e-commerce platform, 11st, in partnership with Amazon.163 Additionally, the group’s mobility ser- vice subsidiary and US ride-hailing giant Uber, through a JV, launched an integrated ride-hailing 158 See generally Kakao Entertainment Corp. Kakao Entertainment Acquires Tapas and Radish Media, Two Leading U.S.- Based Storytelling Platforms. Available at https://www.prnewswire.com/news-releases/kakao-entertainment-acquires- tapas-and-radish-media-two-leading-us-based-storytelling-platforms-301288196.html; Frater, P. Kakao (December 16, 2021). Entertainment Buys Wuxiaworld Online Fiction Platform. Variety (blog). Available at https://variety.com/2021/ biz/asia/kakao-entertainment-buys-wuxiaworld-1235134902/; Layton. (July 10, 2020). Asian Streamer Hooq Acquired by E-Retailer Coupang, Suggests Report - TBI Vision. Television Business International (blog). Available at https://tbivision. com/2020/07/10/asian-streamer-hooq-acquired-by-e-retailer-coupang-suggests-report/; Crunchbase. Query Builder | Acquisitions. Accessed May 18, 2023. Available at https://www.crunchbase.com/search/acquisitions/field/organizations/ num_acquisitions/coupang; 159 See generally Han S. (August 31, 2021). Kakao & Melon Complete Merger for Expanded Business in Global Content Publishing, Music, Distribution + More. Allkpop. Available at https://www.allkpop.com/article/2021/08/kakao-melon- complete-merger-for-expanded-business-in-global-content-publishing-music-distribution-more.. 160 See generally Sae-jin, P. (2021, March 18). Kakao Makes Foray into Car-Sharing Market Through Acquisition of No. 3 Service Operator. Aju Korea Daily. Available at https://www.ajudaily.com/view/20210318150514221. 161 See generally Korea Joon Gang Daily (2021) supra note 157. 162 See generally Jennings (2021) supra note 15. 163 See generally Hosokawa K. (November 17, 2020) Amazon Forays into Korea in Partnership with SK Telecom. Nikkei Asia Available at. https://asia.nikkei.com/Business/Retail/Amazon-forays-into-South-Korea-in-partnership-with-SK-Telecom. 70 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges app in Korea in 2021164 to compete in the domestic market dominated by the platform owned by one of the largest digital conglomerates in the country. Korea has significantly strengthened its competition enforcement and merger con- trol tools, with ex-ante regulation gaining traction as an approach to curbing an- ticompetitive behavior. Although Korea has benefitted from a strong competition regulatory and institutional frame- work since the early 80’s, the Korean Fair Trade Commission (KFTC) has traditionally strug- gled to deal with the behavior of conglomerates.165 Korea’s Monopoly Regulation and Fair Trade Act was enacted in December 1980, which granted KFTC a broad mandate including the ability to oversee and mitigate the anticompetitive effects of mergers.166 Merger control can take place either ex ante, through obligatory pre-merger notification of operations above notification thresh- olds and voluntary notification for the rest of operations;167 or ex post, as the KFTC has explicit powers to review the effects of consummated mergers up to five years after their closure.168 Given the large number of market consolidations in the country, the KFTC has progressively strength- ened its merger control framework throughout the past decades to be better equipped to deal with conglomerates. For instance, merger guidelines call for a need to account for the superior bargaining positions of conglomerates and their ability to finance their operations through debt guarantors.169 In order to better address the challenges of digital markets, the KFTC amended its Merger Re- view Guidelines in 2019. The revised guidelines aim to address several issues of digital conglom- erate mergers. First, they provide guidance in determining a relevant market when reviewing an ‘innovation industry’ merger.170 In innovation-centric markets, such as digital ones, innovation ac- tivity would be treated as a separate product or service for merger review purposes. The compe- tition authorities should consider, among other criteria, whether the merging parties are relevant innovators in their markets, the number of companies in the innovation market, and the innova- tion capabilities of the merging parties and their competitors.171 Second, the guidelines acknowl- edge data as an important asset for competition. They establish that companies can substantially 164 See generally Reuters. Uber Joins Forces with SK Telecom to Crack Tough Korea Market. October 15, 2020, sec. Media and Telecoms. Available at https://www.reuters.com/article/us-uber-sk-telecom-idUSKBN27034U. 165 See Case Study on Korea in OECD (2020), Duties and Responsibilities of Boards in Company Groups, Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/859ec8fe-en. This case details the efforts of the government in general and the KFTC in particular to limit potential anticompetitive behavior of conglomerates including through a unique “Conglomerate Designation Rule”. 166 See Korea’s Monopoly Regulation and Fair Trade Act, supra note 110, article 7 which regulates mergers and acquisitions, prohibiting anyone from substantially lessening competition through consolidation operations. 167 See at Korea’s Monopoly Regulation and Fair Trade Act, supra note 110, article 11. 168 See generally KFTC. Guidelines for Combination of Enterprises Remedies. 2017. https://www.ftc.go.kr/eng/cop/bbs/ selectBoardList.do?key=2857&bbsId=BBSMSTR_000000003634&bbsTyCode=BBST11. 169 See generally Yoo, I. H., Shin, H. and Park, K., Acquisition finance in Korea: overview | Practical Law,. Available at https:// content.next.westlaw.com/practical-law/document/Ifd6eb22c137111e698dc8b09b4f043e0/Acquisition-finance-in-South- Korea-overview?viewType=FullText&transitionType=Default&contextData=(sc.Default) (last visited Mar 24, 2023). 170 See at Yulchon LLC-Hae Sik Park et al. (March 11, 2019). KFTC Adopts Amended Merger Review Guidelines for Greater Guidance in Reviewing Mergers in Innovation Industries. Lexology., available at https://www.lexology.com/library/detail. aspx?g=baf7fb0b-c039-4577-9f6d-7df70fc0d40d 171 See Idem 71 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges lessen competition by limiting competitors’ access to data and other information assets.172 To account for this risk, if a merger involves big data, the KFTC should consider the data collection, management, analysis, and utilization capabilities of the merging parties and their competitors, the incentives of the merging parties in limiting access to data, the merger’s effects on market entrance, and privacy protection.173 The enforcement of these criteria is not straightforward and leaves ample space for interpretation, which may limit the intended effects of the reforms. Moreover, merger notification thresholds were amended to address the acquisition of smaller competitors or start-ups. In 2020, the KFTC included the value of the transaction as a relevant threshold for the notification of mergers. Consequently, mergers can trigger notification even if the acquired company holds assets below the threshold,174 when the value of the transaction is high (over 450 million dollars) or the company has more than one million users and R&D facilities in Korea.175 This change allows the KFTC to take a closer look at acquisitions that would have gone under the radar and could potentially reduce competition through what is known as killer acqui- sitions.176 In this context, only in 2021, the KFTC reviewed 1,113 merger cases, 20 of which were subject to in-depth investigation for their potential anti-competitive effects, and one case was concluded to raise anti-competitive concerns. Conglomerate mergers accounted for 60.4 percent of the total number of notified mergers.177 Moreover, given the rise of international mergers, in December 2022, the KFTC established an international mergers and acquisitions unit to analyze these mergers and collaborate with other competition authorities worldwide.178 Korea also has taken important steps to foster better outcomes in digital markets through ex ante regulation. Aiming to increase transparency in online markets and protect SMEs and consumers,179 the KFTC180 proposed a new law that leverages ex-ante regulation by mandating digital platforms involved in trade processes provide their business users with clear contracts on the service provided. Called the “Act on Fairness in Online Platform Intermediary Transactions” (OPA), the proposed act is being reviewed as of August 2023. According to the KFTC, if the Act is implemented, business operators would be better armed to understand the trade terms and con- ditions with digital providers and prevent digital platforms from preferencing their own services.181 Nonetheless, in 2022 the authorities governing KFTC changed, which has led to a change in strat- 172 See Idem 173 See Idem 174 See generally KFTC Amendments to M&A Review supra note 124. 175 See Idem 176 See at OECD, Note by Korea (2022), supra note 147. 177 See at OECD, Annual Report on Competition Policy Developments in Korea, (2021), p. 6. 178 See generally Oh, H-J. (December 28, 2022) Korea Fair Trade Commission Opens Unit to Review Global M&As. KED Global (blog). https://www.kedglobal.com/economy/newsView/ked202212280003.. 179 See at OECD, Note by Korea, Ex-Ante Regulation and Competition in Digital Markets, DAF/COMP/WD(2021)65, OECD, (2021) 180 In September 2022, a new Chairperson of the Korea Fair Trade Commission was appointed. In its conferral speech Dr. Han argued for “(…) the need to establish self-regulatory measures that enable the platform operators, businesses that utilize the platforms, and consumers to autonomously resolve disputes among them, since excessive government intervention in the digital platform sector may disrupt the market dynamics”. He has taken the position that the KFTC will consider a legislative approach for the platform market, only after such self-regulatory efforts prove to be unsuccessful. Accordingly, the KFTC’s investigative or legislative efforts for the platform market are expected to generally diminish.” See at Bae, Kim & Lee LLC (2022). Appointment of the New KFTC Chairperson: Implications on Antitrust Enforcement in Korea, Lexology available at https://www.lexology.com/library/detail.aspx?g=ab1a314b-92d9-4e22-965f-7d598905da96. 181 See Idem 72 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges egy on how to deal with digital platforms. The incoming authorities of the KFTC have signaled a preference for self-regulation of digital platforms, generating a loss of momentum for the approval of ex-ante regulation.182 Korea has been at the forefront of implementing regulation to prevent tying between appli- cation stores and in-app payment systems, although certain limitations persist. Tying is a central concern when it comes to competition in digital ecosystems, as it would allow dominant providers to leverage their dominance into adjacent markets (see Box 2 for a discussion of the impact of tying and bundling). To increase competition in the digital payments market and lower fees borne by application developers,183 Korea amended its Telecommunications Act to require ap- plication store operators to open up their platforms, enabling application developers to integrate third-party payment systems. According to this regulation, both Apple and Google are prohibited from compelling application developers to exclusively use their payment systems. While ex-ante regulation such as this one could be a useful tool to curb anti-competitive practices by dominant digital providers, uncertainties persist regarding its practical effectiveness. For instance, in re- sponse to the Korean government’s implementation of ex-ante regulation, Google made adjust- ments to its Google Play payment policy to circumvent the regulations.184 With regulations and practices rapidly evolving in this domain, further research is imperative to assess the efficacy and suitability of ex-ante regulation. 2. Viet Nam Viet Nam’s digital development has relied heavily on regional players and state-led companies, especially in the telecommunication sector. Conglomerates remain heavily interlinked and while a recent reform significantly reinforced the competition regulatory framework, implementation has not yet been finalized. State presence paired with prominent positions of regional platforms characterize Viet Nam dig- ital markets Most local digital conglomerates in Viet Nam originated from SOEs in the tele- communications sector that used their strong positions in ICT to expand into other markets. The three largest local conglomerates with presence in digital platform markets are state led and account for around 94 percent of the internet broadband market185 Utilizing their strong position 182 See generally https://www.etnews.com/20220904000040 183 See generally, Kim & Chang. (September 29, 2020). KFTC Issues Public Notice on Proposed Enactment of the Fair Online Platform Intermediary Transactions Act. Kim & Chang (blog). https://www.kimchang.com/en/insights/detail.kc?sch_ section=4&idx=22155. 184 See generally Hosokawa, K. (2023, May 12). Korea fails to rein in Apple, Google app fees, critics say. Nikkei Asia. Available at https://asia.nikkei.com/Business/Finance/South-Korea-fails-to-rein-in-Apple-Google-app-fees-critics-say 185 See generally Ministry of Information and Communication of the Socialist Republic of Viet Nam. White book Viet Nam Information & Communication Technology. Available at https://english.mic.gov.vn:443/Pages/TinTuc/ thongtinchitiet_1baiviet.aspx?tintucid=115426. 73 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges in mobile and internet service provision, these conglomerates expanded their business to digital platform markets such as online gaming, Fintech, and e-commerce. SOEs with digital platform participation are therefore mainly focused on the e-commerce and digital payment sectors, which they link to their telecommunications services. Significant participation of SOEs in competitive markets typically served by the private sector raises competitive neutrality concerns. Figure 16. Top 25 industries Targeted in Conglomerate Mergers in Viet Nam Over the 10- Year Period, 2012-2021 0 5 10 15 20 25 30 35 40 Book Publishers Electronic Shopping Custom Computer Programming Services Software Publishers Internet Publishing And Broadcasting And Web Search Portals Periodical Publishers Professional and Management Development Training Computer Systems Design Services Internet Service Providers All Other Telecommunications Motion Picture and Video Production Computer Training Interior Design Services Data Processing, Hosting, and Related Services Telecommunications Resellers Wired Telecommunications Carriers Newspaper Publishers Business to Business Electronic Markets Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). Yet, foreign conglomerates have a more diverse offering of digital products and services than state-led players. Despite foreign investment restrictions in sectors such as transportation and fi- nancial services, regional players have acquired strong market positions in e-commerce, Fintech, ride hailing, and delivery. Compared to SOEs, foreign regional conglomerates, mostly originated in Singapore and Malaysia, offer more diversified digital platform services in connected markets. Conglomerates with e-commerce as their main digital platform sector in Viet Nam are now also operating delivery and gaming platforms, as well as e-wallets. The leading regional ride hailing company also operates food delivery and holds its own e-wallet and e-commerce platforms. For- eign conglomerates have often used variable interest entities to avoid foreign direct investment (FDI) restrictions. 74 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Private offline conglomerates are barely involved in digital platform markets. Offline conglom- erates have invested in digital markets only to support their core offline businesses. Offline con- glomerates involved in real estate, retail, and food processing tend to set up subsidiaries or ac- quire shares in Vietnamese companies engaging in Fintech or e-commerce to develop the digital channels of their core businesses rather than to expand into digital platform markets.186 Local conglomerates, especially state owned, enter into digital platform markets through in- ternal development of new business units/subsidiaries or JVs, while foreign digital conglom- erates show a stronger M&A activity. State-owned conglomerates do not actively participate in merger and acquisitions as their large foreign counterparts do. Only local private conglomerates have carried out deals to buy shares in companies engaging in, for example, e-commerce.187 On the other hand, large foreign conglomerates have invested in several local digital platforms, espe- cially those involved in Fintech or e-commerce.188 There are no apparent links between these large regional digital conglomerates and the SOE conglomerates with presence in telecom and digital. The top five sectors targeted by conglomerate mergers in Viet Nam from 2012-2021 include book publishers, electronic shopping, custom computer programming services, software publishers, and internet publishing and broadcasting and web search portals. A reduced number of private platforms have emerged and grown from start-ups, attracting investment or being acquired by large regional digital platform players. Viet Nam’s first uni- corn stands out as the main private local digital platform conglomerate with a very diverse service offering. It has become one of the main players in gaming and has strong participation in sectors such as streaming, Fintech, e-commerce, social media, and delivery services. VNG also offers related services such as software, technology, and cloud services. Although it started as an online gaming platform in 2004, it kept expanding into adjacent markets, securing investments from large foreign digital conglomerates, including Tencent.189 There are important links among conglomerates participating in digital markets through common ownership, investments, and strategic partnerships, which increase the risks of collusion. Large regional players, through their ownership and investments, participate in Viet Nam’s digital platform markets through more than one player, which often compete in the same digital platform market. For example, Tencent backs up two large conglomerates participating in e-commerce platform markets in Viet Nam. At the same time, Tencent owns part of the local dig- 186 See generally Vingroup. Ba tỷ Phạm Nhật Vượng – Hồ Hùng Anh – Nguyễn Đăng Quang phú đứng đầu 3 tập đoàn Vingroup – Techcombank – Masan Group bắt tay nhau đằng sau sự thành lập của Công ty One Mount Group. Vingroup BĐS. Available at https://vinhomecitys.com/vingroup-techcombank-masan-bat-tay-nhau-dang-sau-one-mount- group/. 187 See Crunchbase (2023) at 33. 188 See generally Reuters. (December 19, 2019). Exclusive: Ant Financial Takes Stake in Viet Nam’s EMonkey: Sources. Sec. Banks. Available at https://www.reuters.com/article/us-antfinancial-vietnam-exclusive-idUSKBN1YN1DI; VIR, (July 28, 2019) Viet Nam Investment Review-. VNLIFE Bags$300 million Investment from Softbank and GIC. Viet Nam Investment Review. Available at https://vir.com.vn/vnlife-bags-300-million-investment-from-softbank-and-gic-69568.html 189 See generally Crunchbase. VNG - Funding, Financials, Valuation & Investors. Accessed May 18, 2023. https://www. crunchbase.com/organization/vng/company_financials; Le T. H. (July 30, 2021) VNLife Nets over $250m in One of Viet Nam’s Largest-Ever Funding Rounds. Tech in Asia. Available at https://www.techinasia.com/vietnams-vnlife-raises-us250- million-series-led-general-atlantic-dragoneer#:~:text=3%20min%20read-,VNLife%20nets%20over%20%24250m%20 in%20one%20of%20Vietnam’s%20largest,Atlantic%20and%20Dragoneer%20Investment%20Group. 75 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges ital conglomerate which competes with one of these two large conglomerates in gaming, e-com- merce, and Fintech. SoftBank backs up two competing e-wallet services. Multi-market contact is a facilitating factor for cartels, often requiring closer monitoring by competition authorities to avoid the risks of collusion. Foreign digital conglomerates make cross investments or set up collaborations to cross leverage the strength of firms in different sectors. An online-offline example would be Alib- aba’s acquisition of shares in a large Vietnamese retail firm in 2021190 to create collaboration between Alibaba’s e-commerce platform and a local supermarket chain. Alibaba has also invest- ed in two logistics companies in Viet Nam. In an online-online example, in 2020, the leading ride hailing (superapp) conglomerate and one of the leader conglomerates in e-commerce announced a wide-ranging collaboration in Viet Nam to provide a seamless digital experience to consumers.191 Digital conglomerates have vertically integrated to extend their market power into connect- ed markets, a strategy that could be considered exclusionary if implemented by a dominant operator. For example, large digital conglomerates owning e-commerce platforms also own dig- ital wallets and hold majority shares in logistics companies. These groups are leveraging the syn- ergies of these links as they would be able for instance to use their digital wallet to pay for sales in the e-commerce platform delivered through their own services. If implemented by a dominant player, such arrangements, while providing efficiencies for the benefit of consumers, could also foreclose competitors from entering or growing in these markets. The implementation of a recent reform of the competition law has not been final- ized, and key institutional and regulatory elements to address the challenges posed by digital markets are still missing Gaps in the previous framework limited the ability of the competition law to tackle the perva- sive problems of Vietnamese markets, notably lack of competitive neutrality. Shortcomings of the 2004 competition regulatory framework included the treatment of anticompetitive practices (e.g. potential exemptions to hard core cartels such as price fixing agreements, structural defini- tion of dominance and misuse of cost benchmarks to identify price-based abuses, prohibitions of mergers above 50% combined market share of parties); the limited effect on state monopolies, public-utility providers and private firms dealing with them; as well as lack of key enforcement tools for the competition authority. Moreover, limited institutional independence—both the com- petition agency as well as the sector regulators directly depend in their decision making on the Ministry of Trade and other line Ministries—might have limited economy-wide and sector-specific competition enforcement, especially in sectors with SOE presence. 190 See generally Masan Group. (June 14, 2021) Alibaba Group and Baring Private Equity Asia Invest in the Crownx. https:// www.masangroup.com/news/masan-news/Alibaba-BaringPrivate-Equity-Asia-consortium-complete-400mm-investment- in-The-CrownX.html. 191 VIR, Viet Nam Investment Review (November 11, 2020). Grab Viet Nam Partners with Lazada Viet Nam to Bring More Benefits to Consumers. Viet Nam Investment Review. Available at https://vir.com.vn/grab-vietnam-partners-with-lazada- vietnam-to-bring-more-benefits-to-consumers-80660.html. 76 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 6,66% Figure 17. Mapping of Vietnamese Conglomerates 2021-2022 Legend telecommunication retail e-commerce entertainment finance/fintech e-commerce Viettel Telecom Viettel Store Sendo ZingPlay ShopeePay VinShop Entertainment/media digital services e-commerce finance/fintech finance/fintech ZingMP3 digital services E-commerce Mocha Vo so SenPay Foody VinID Pay ZingTV Tourism Cloudrity logistics entertainment/media real estate Viettel Post 123Go, 123 Film Garena 30% One Housing communication digital services 51% Viettel Start Cloud, Cloud Server, Private Cloud, Virtual MyGo FPT Xone e-commerce 27,63% Logistics finance/fintech Private Cloud, etc. entertainment VNG Games Shopee digital services FPT Smart Cloud Vietcombank 15% Viettel HIS Tv360 communication logistics Food FPT Software ShopeeXxpress VCB Pay MyClip Baomoi 15% ViettelStudy, SMS Study, SMAS Telecommunication FIS food Momo Keeng ZingNews 7,5% Epass ShopeeFood Retail FPT Digital communication 360Live E-ticket retail Finance/Fintech Mocha digital services real estate My Parking FPT Retail 46,53% Vinhome transport/hailing Tiin.vn Zalo Vtracking F.Studio 46,53% Vincom real Estate NetNews VNG Cloud finance/fintech FPT Pharma Long Chau 46,53% tourism Controller/Owner/Partial owner VNG DC MBBank 19,9% entertainment Vinpearl Digital platform-based firm Laban FPT Online 20,18% Viettel Money Connections represent ownership TrueID e-commerce / JVs / investments / alliances / ViettelPay FPT Play 45,65% partnership etc. finance/fintech ShopBase Kamereo % TPBank 5,29% Beeketing 50,2% 50,2 telecommunication 5,83% finance/fintech Vinaphone FoxPay 45,65% e-commerce True Money % digital services Telio 50,2 20,3% VNPT MSS telecommunication logistics e-commerce State Capital Ecotruck 20,67% VNPT Cloud State of Viet VTC Media Tiki and Investment retail Nam finance/fintech VDC Corporation digital services Winmart, Winmart+ 13% ZaloPay 60% VTC Games e-commerce CrownX VNTT Masan Consumer AFTER 8,17% finance/fintech 123Pay 60% Lazada 13% 20 retail VTC Pay 14 VNPT Technology POSTMACO 51% transport/hailing BEFORE 2014 FOCAL Hojek digital services ANSV 48,8% logistics Line finance/fintech GoSend VNPTPay food telecommunication EPay 35% GoFood 29% Mobifone Finance/fintech finance/fintech transport/hailing communication Wepay MobifonePay GrabBike, GrabCar Soha Ficus Asia entertainment GrabBike Rent LinkHay Sohogame logistics CafeF GrabExpress logistics GameK 29% Kenh14 e-commerce Ahamove e-commerce Muachung Cafebiz digital services GrabMart, GrabAssistant GHN digital services Dichung, Tripi, Mytour.vn food digital services digital services Muare Afamily Bizly finance/fintech GrabFood Edupia Haravan Rongbay GenK Bizfly Cloud VNPay Finance/fintech food retail Enbac Lotus VietID VNPay - QR Moca Homefarm Coffee House Source: Authors elaboration 77 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges While the new law tackles some of these concerns, implementation remains challenging. The commissioners of the National Competition Commission have not been appointed until 2023.192 In the meantime, the former Viet Nam Competition and Consumer Authority (“VCCA”) and the Viet Nam Competition Council (“VCC”) remained in charge of enforcement and merger control, limit- ing full implementation of the 2018 law. Merger control for conglomerate operations remains relatively light, even in digital markets, despite ample powers granted by the new law. Chapter V of the Viet Nam Competition Law regulates merger notification together with the Guiding Decree (Decree No. 35/2020/ND-CP), but conglomerate merger guidelines have not been approved yet. Merger notification is mandatory for all transactions that cross the filling thresholds established in Decree 35 of 2020. The Competition Law does not contemplate any exceptions to the filing obligation. This means that intra-group restructuring or joint-ventures with no local nexus may trigger the obligation to notify the Com- mission.193 Viet Nam’s regulation establishes that any vertical or conglomerate merger would be unconditionally approved in Phase I if the market shares of the merging parties are below 20%..194 In the first two years of operation – from 2019 to 2021 – 125 merger operations were reported to the VCCA. Conglomerate mergers represented 36% of the total number of mergers, horizontal mergers 45%, and vertical mergers the remaining 19%.195 During the same period, 10% of those mergers had undergone a Phase II analysis.196 As of May 2023, the only merger case approved with conditions has been the operation between Uber and Grab. However, this decision was later reversed by the Competition Council on the grounds that the transaction was not an acquisition under the law and, consequently could not be limited by the VCCA.197 Viet Nam has also taken a proactive role in regulating digital platform. On June 2023, Viet Nam’s National Assembly passed the E-Transaction Law. The regulation establishes obligations for digital platforms, including allowing users of dominant platforms to uninstall application soft- ware that is preinstalled and requiring platforms to draft codes of conduct, among others.198 This regulation shows an increasing concern on the need to shape pro-competition behavior of digital platforms, as a necessary complement to the antitrust framework. 192 See at Viet Nam Competition Law, supra note 107, Chapter VII. 193 See at Viet Nam Competition Law, supra note 107, Chapter V. 194 See at Viet Nam’s Decree 35, supra note 126, article 13 (b). 195 See at Viet Nam Competition and Consumer Authority, The Economic Concentration Control, Under the Viet Nam Competition Law, July 2019 – July 2021, (2021), p. 4 http://www.vcca.gov.vn/data/ec84ff2e-887c-4a2f-8c60-c919696e3f1d/ userfiles/files/Cuc%20QLCT_Fact%20Sheet%20Tap%20Trung%20Kinh%20Te_Version%20E%20(v2).pdf. 196 See idem p. 5. 197 The Competition Council ruled that the transaction was not an acquisition under the law and, consequently could not be limited by the VCCA. See Generally Oguchi (2022) supra note 136. 198 See generally Viet Nam’s Law on E-Transactions 2023, No. 20/2023/QH15 78 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 3. Malaysia In Malaysia, government-linked conglomerates have played a key role in the development of dig- ital platforms, although private platforms are the largest operators in digital markets. In this context, Malaysia shows less interlinks among conglomerates as compared to the other countries analyzed. Lack of merger control powers in the Competition Act limit the ability of authorities to prevent negative effects of market consolidation. Even though private platforms remain the largest operators, government-linked conglomerates in Malaysia are heavily involved in digital platforms Figure 18. Top 25 industries Targeted in Conglomerate Mergers in Malaysia over the 10- Year Period, 2012-2021 0 5 10 15 20 25 30 35 Software Publishers Custom Computer Programming Services Internet Service Providers Wired Telecommunications Carriers Internet Publishing And Broadcasting And Web Search Portals Professional and Management Development Training Data Processing, Hosting, and Related Services Electronic Shopping Book Publishers Other Computer Related Services Computer Facilities Management Services Computer Systems Design Services Television Broadcasting Motion Picture and Video Production Advertising Agencies Industrial Design Services Cable and Other Subscription Programming Newspaper Publishers Other Electronic and Precision Equipment Repair and Maintenance Computer and Office Machine Repair and Maintenance Consumer Electronics Repair and Maintenance Computer Training Graphic Design Services News Syndicates Wireless Telecommunications Carriers (Except Satellite) Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 79 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges The growth of digital participation of local firms in Malaysia seems to be led by Govern- ment-linked companies (GLCs). GLCs, under the control of the federal government through en- tities known as government-linked investment companies (GLICS), are involved in digital plat- form markets through their subsidiaries and seem to be leading the growth of digital platform participation of local firms in Malaysia. GLCs have entered digital platform markets through their subsidiaries and, unlike in Viet Nam, through M&A. In particular, a key GLIC, Khazanah Nasional, has significant activities in financial services, telecommunications and health care and owns the most notable GLC entity with digital platform reach, with operations in Fintech, logistics, and e-commerce. Most recently, its e-wallet, in partnership with a brick-and-mortar bank, won one of five digital banking licenses issued by Malaysia’s Central Bank.199 The same GLIC has invested in an e-commerce platform. Another prominent e-wallet in Malaysia is owned by a GLC controlled by two key GLICs. In 2019, this GLC acquired a significant stake in a leading e-wallet of which another significant stake is held by Chinese digital conglomerate Alibaba. Moreover, Cradle, a grant promoting agency under the purview of a GLIC of the Ministry of Finance, has been instrumental in jumpstarting various successful digital platforms in Ma- laysia.200 Through pre-seed and seed funding, Cradle has helped develop many well-known and successful digital platforms in food delivery, business-to-business [B2B] e-commerce, transport booking, accommodation rental and sales, and digital learning, among others. Several of these grantees have been able to successfully scale and raise series funding from venture capital com- panies or have been acquired by other players. Despite state involvement in digital platform markets, private players lead the scene. A dig- ital conglomerate with origins in ride hailing is the leading conglomerate in digital platform mar- kets in Malaysia and has started to look at brick-and-mortar investments with keen interest for vertical integration. The company has been a huge Asian-grown success story, operating in eight countries in various digital sectors beyond ride hailing, including food delivery, e-wallets, Fintech, and e-commerce. More recently, it has been successful in winning two digital banking licenses in Singapore and Malaysia, respectively, and thus is also breaking new ground in the next phase of financial services. The conglomerate has also expanded into offline business through the acquisi- tion of a successful domestic supermarket chain.201 This is the company’s first non-digital acqui- sition, and it looks for vertical integration to strengthen its own platform-based supermarket of- fering, as well as at integrating its payments platform into physical outlets. From 2012 to 2021 the top digital sectors targeted by conglomerates in Malaysia included software publishing, custom computer programming services, internet service providers, wired telecommunication carriers, and internet publishing and broadcasting and web search portals. The pandemic also increased the interest of offline players in participating in digital markets. Ma- laysia’s global low-cost air carrier was growing before the pandemic, but was heavily affected by the interruption of tourism. In the pre-Covid years, the company had reshuffled its business mod- 199 See generally Central Bank of Malaysia. (April 29, 2022). Five Successful Applicants for the Digital Bank Licenses. Available at https://www.bnm.gov.my/-/digital-bank-5-licences. 200 See generally Cradle Fund. Cradle Fund - Creating Leading Startups. Accessed May 25, 2023. Available at https:// cradle.com.my/who-we-are/ 201 See generally Grab Press Center. (January 31, 2022) supra note 22. 80 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges el with a focus on acquisitions of digital services, such as a travel booking platform, that could reinforce its core business,202 as well as e-wallet and digital financial services apps.203 The pan- demic accelerated the shift to digital business, and they entered the ride-hailing market. While well-established offline conglomerates were not heavily involved in digital platform businesses, they started entering these markets with the COVID pandemic. For example, a conglomerate with operations in sectors ranging from construction, hospitality, retail, to health care also has invest- ments in digital platforms—such as Malaysia’s first unicorn start-up, a car sales platform. Compared to the other countries analyzed in the EA region, Malaysia exhibits less interlinkages between conglomerates. Links are mainly present between GLCs backed by common GLICs and ultimately the government. Otherwise, few links existed among private players and between GLCs and private conglomerates. This trend has changed with the creation of consortia to apply for digital banking licenses. In April 2022, Malaysia’s Central Bank announced the award of five digital licenses to consortia that included a mix of domestic and foreign players, as well as business- es having existing digital services capacity, traditional banks, and some solely brick-and-mortar businesses. Lack of merger control powers in the Malaysian competition law hinders the ability of the government to limit ex ante the risks of conglomerate mergers In principle, the Malaysian competition regulatory framework sets the basic procedural and institutional grounds for the enforcement of competition policy. Both the Malaysian Com- petition Act and the Competition Commission Act entrust the competition agency with in- vestigatory powers, market study prerogatives and sanctions for proscribed anticompetitive practices. In 2011, the Malaysian Competition Commission (Suruhanjaya Persaingan Malaysia) was set up according to the Competition Act 2010 (Act 712) and the Competition Commission Act 2010 (Act 713).204 However, lack of merger control powers in the competition constitutes a critical gap to be able to address the risks brought about by market consolidation. Control over mergers is crucial to curbing the negative effects of market concentration while enabling beneficial consolidation. In this context, sector specific-regulators such as in energy, telecoms and banking remain key to the analysis of mergers both from a sector-specific as well as a competition lens. Internationally, only a few jurisdictions with competition laws do not have an overarching merger control framework205 and there are increasing discussions about strengthening merger control in digital markets. Thus, MYCC can only act ex-post by identifying anticompetitive behaviors of dominant players, including those operating in digital markets. This has been the MYCC approach, including for Grab after it 202 See generally Ellis, J. (March 15, 2018). AirAsia Is Entering the Digital Payments Race. Tech in Asia (blog). Available at https://www.techinasia.com/airasia-bigpay-launch. 203 See Idem. 204 See generally Malaysia’s Competition Act 2010 (Act 712) available at http://www.mycc.gov.my/sites/default/files/CA2010. pdf; Competition Commission Act 2010 (Act 713) available at http://www.mycc.gov.my/sites/default/files/CCA2010.pdf. 205 Peru was one example, but in May 2019 the congress approved a merger control law that has yet to be gazzetted. 81 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 19. Mapping of Malaysian Conglomerates 2021-2022 Legend construction digital services digital services transport/hailing transport/hailing e-commerce finance/fintech Entertainment/media Plus Expressway Touch 'n Go Alibaba Cloud Air Asia AirAsia Ride Shopee YTL Digital Capital Sdn Bhd finance/fintech e-commerce finance/fintech finance/fintech entertainment/media E-commerce construction CIMB Bank Lazada Air Asia Corporate Services BigPay Garena human resources MRCB George Kent CIMB Investment Bank TaoBao education digital services finance/fintech telecommunication Tourism RedBeat Academy ikhlas Proposed Digital Bank yes 4G PJ Sentral Development Touch 'n Go e-wallet oil and gas/energy logistics oil and gas/energy Penang Sentral Employees Teleport Commerce Paka Power Station Telecommunication telecommunication Provident Fund food TIME dotCOM Logistics of the GoMY construction Santan healthcare Cheras-Kajang Highway tourism construction vidi Sentul Works digital services transport/hailing Khazanah Tulips Puchong Food Malaysia Airlines real estate Nasional fund of Taman Pakatan Jaya manufacturing LiveIn the GoMY Construction Speedhome Retail education Tourism healthcare healthcare Pandai JW Marriot Finance/Fintech Doctor Anywhere Columbia Asia Hospital Construction transport/hailing AOne Schools Ritz-Carlton food Sunway Resort LOGISTICS agriculture Hotel Stripes tresgo Food Panda Sunway City education Pangkor Island Resort Catch That Bus Sunway City - Johor construction Tanjong Jara Resort real Estate e-commerce digital services digital services UEM Builders Sunway City - Ipoh Kumoten Iraya Energies VADS Gaya Island Resort Controller/Owner/Partial owner Sunway Subang Dropee oil and gas / energy Digital platform-based firm Telekom Applied Business Petronas Carigali Sunway South Quay e-commerce finance/fintech Connections represent Lapasar ownership / JVs / investments / Petronas Trading Fashion Valet healthcare GrabPay alliances / partnership etc. digital services telecommunication Subang Jaya Medical Centre Proposed Digital Bank healthcare Piktochart Petronas Lubricants TM Sunway Medical centre Petronas Gas Ara Damansara Medical Centre (rumoured) AmBank Food Market Hub Ministry unifi Broadband Sunway Specialist Centre Finance/Fintech of Finance SOLS Energy Park City Medical Centre transport/hailing capbay Incorporated unifi Mobile construction GrabCar Sunway Senior Living agriculture human resources of the GoMY Braintree Technologies Education Sime Darby Industrial e-commerce SunMed Clinica cidekick Multimedia University manufacturing GrabMart hiredly Associated Motors Industries retail manufacturing Jaya Grocer construction healthcare SchoolTrac Bermaz Auto naturi food Sunway Construction Rapita Auto Bavaria GrabFood food Sunway Engineering transport/hailing Delivereat MDT Innovations SoCar Sunway Concrete Products finance/fintech MDT Fintech construction digital services LOGISTICS Permodalan e-commerce MRT Nasional Berhad Carsome Tourism ParkEasy Easy Parcel of the GoMY Sunway Hotel finance/fintech The Lorry transport/hailing E-COMMERCE finance/fintech Proposed Digital Bank Sunway Clio rapidrail finance/fintech Proposed Digital bank - KAF-led consortium Signature Market Sunway Putra rapidbus Bank Pembangunan DIGITAL SERVICES RHB Bank digital services ADA Carlist.my RHB Investment Bank Finance/Fintech finance/fintech telecommunication finance/fintech entertainment/media digital services EXIM Bank AgroBank RHB Islamic Bank Raiz WapCar Wise AI Celcom Tune Talk finance/fintech Boost Source: Authors elaboration 82 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges acquired Uber, sanctioned with a $20.5 million dollars fine for abusing its dominance by prevent- ing its drivers from promoting and advertising the services of Grab’s competitors.206 Additional exclusions from the scope of application of the competition law for certain SOEs and sectors with significant conglomerate participation increase competition concerns. All enterprises entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly are excluded.207 Key sectors of the economy, such as telecommunications and energy, that are subject to sectoral rules208 are also exempted from antitrust scrutiny. Sectoral regulators, including the Malaysian Communication and Multimedia Agency and the Malaysian Aviation Commission, can review mergers, including conglomerate mergers. The Malaysian Communication and Multimedia Agency has issued Guidelines on Mergers and Acquisitions that highlight the risks of conglomerate mergers, notably due to bundling or ty- ing complementary of products. 209 However, the competition impact has only been systematically considered in one case, the merger of Korean Air Lines Co, Ltd. and Asiana Airlines, Inc.’s.210 In April 2022, the MYCC presented a proposal to introduce merger control powers in the Competition Act. Under this proposal, M&A operations should be approved by the MYCC, and the Authority would be able to block any operation that substantially lessens competition.211 The proposal presents a hybrid system in which some mergers that fall above the notification thresh- olds212 would require notification, while the merging parties could also voluntarily notify mergers that fall below those standards.213 The amendment includes the possibility of retrieving “com- puterized data”214 as evidence in competition cases. The MYCC argues that this addition would facilitate the collection of digital evidence, allowing the MYCC to deal with the development of digital platforms. Nonetheless, the proposed amendments do not make any specific reference to conglomerate mergers. 206 See generally Liz, L. (2019, October 3). Malaysia proposes $20 million fine on Grab for abusive practices. Reuters. Available at https://www.reuters.com/article/us-grab-competition-malaysia-fine-idUSKBN1WI06D (last visited Mar 20, 2023). 207 See Malaysia’s Competition Act supra note 203, Article 3(4)(a) and Second Schedule [Section 13] (c). 208 The Commission is in charge of applying the law in all sectors except for those regulated by the Communications and Multimedia Act 1998 and the Energy Commission Act 2001 (established at the First Schedule in Act 712), Petroleum Development Act 1974, Petroleum Regulations 1974 and Malaysian Aviation Commission Act 2015. Nonetheless, the Communications and Multimedia Act 1998 includes provisions on anticompetitive practices (Chapter 2) to be enforced by the regulator. 209 See generally Malaysian Communications and Multimedia Commission, Guidelines on Mergers and Acquisitions (2019), p. 50 https://www.mcmc.gov.my/skmmgovmy/media/General/pdf/Guidelines-on-Merger-and-Acquisitions_1.pdf 210 See generally Malaysian Aviation Commission (MAVCOM), MAVCOM Greenlights Malaysia’s First Competition-related Merger, (2021), https://www.mavcom.my/en/2021/09/09/mavcom-greenlights-malaysias-first-competition-related- merger/ (last visited Mar 24, 2023).. 211 See at Malaysia Proposed Amendments, supra note 137, p. 11.. 212 See Idem at Art. 10 J. 213 See Idem at Art. 10 H. 214 See Idem at p. 3. 83 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 4. Philippines In the Philippines, foreign platforms remain prevalent in digital markets although local offline conglomerates have entered into Fintech and e-commerce markets. Although the competition act and Commission are relatively young, and enforcement remains still limited, important steps have been taken to tackle negative effects of mergers and acquisitions in digital markets. While offline conglomerates have entered into digital platform markets in e-com- merce and Fintech, foreign platform conglomerates remain the largest players. In the Philippines, regional digital conglomerates lead the platform markets, particularly in e-commerce and ride-hailing, and they have also expanded into related sectors like fintech. A conglomerate backed by Tencent holds the top position as a B2C platform in the country, at- tracting a total of 73 million monthly visitors in 2021. The second largest platform, supported by Alibaba, recorded 39.4 million monthly visitors in the same year. These conglomerates are actively venturing into the fintech industry. Both platforms offer an e-wallet service that goes be- yond facilitating online transactions within their platforms. Users can also utilize the e-wallets to Figure 20. Top 25 industries Targeted in Conglomerate Mergers in The Philippines over the 10-Year Period, 2012-2021 0 2 4 6 8 10 12 14 16 Internet Publishing And Broadcasting And Web Search Portals Custom Computer Programming Services Software Publishers Electronic Shopping Wired Telecommunications Carriers Internet Service Providers Electronic Auctions Computer Storage Device Manufacturing Computer and Office Machine Repair and Maintenance Professional and Management Development Training Computer Facilities Management Services Computer Systems Design Services Libraries and Archives Data Processing, Hosting, and Related Services Television Broadcasting Radio Networks Teleproduction and Other Postproduction Services Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). 84 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges send money and pay bills. Furthermore, these e-wallet payments come with exclusive product discounts that are not accessible through other payment methods. Additionally, both platforms extend loans to eligible users, enabling installment payments for selected products. Moreover, two of the prominent regional ride-hailing apps in the Philippines have leveraged their networks to provide logistics services for parcel and food delivery. In a similar vein, the leading ride-hailing conglomerate also made a foray into the e-commerce sector in 2020. Local offline conglomerates also followed a similar path for their digital transformation, ei- ther by creating a new platform or through mergers and acquisitions. On the one hand, offline conglomerates started either by digitizing existing financial services, which later expanded to Fin- tech, or through retail stores that created e-commerce platforms or even virtual stores in larger regional e-commerce platforms. For example, one of the largest and most diversified conglomer- ates in the Philippines moved in 2021 from digitizing its retail business though an online store to creating an e-commerce platform that carries third-party products in a wide range of categories. On the other hand, two major offline conglomerates entered the digital platform markets through M&A activity, either by acquiring established e-commerce platforms215 216 or investing in foreign conglomerates operating the largest local e-commerce platform. Refinitiv data indicate that con- glomerate mergers in the Philippines targeted the following top 5 digital sectors: Internet publish- ing and broadcasting and web search portals, custom computer programming services, software publishing, electronic shopping, and wired telecommunication carriers. Both national and regional conglomerates also show a keen interest in vertical integration, especially regarding payment systems. 217 For instance, a national telecommunications con- glomerate invested in a local start-up operating the leading payments and financial service app. 218 Other Filipino conglomerates have investments in telecommunications companies already ac- tive in the payment platform market. In turn, international conglomerates have also made in- vestments in these payment platforms. 219 Digital payment platforms are expanding their product offerings, including financial services and e-commerce. One example is a digital platform compa- ny that started as a digital wallet but has now expanded into lending, insurance, and investment products. Another e-wallet provider has ventured into e-banking, offering savings, insurance, and cryptocurrency services, and has also entered the e-commerce space with a B2C platform. 215 See Dumlao-Abadilla (2017) at supra note 29. 216 See generally Schnabel, C. (2017, December 13). Robinsons Retail invests in BeautyMNL operator. RAPPLER. Available at https://www.rappler.com/business/191276-robinsons-retail-rrhi-investment-taste-central-curators-beautymnl/ 217 See generally Serafica, R. B., Rosete, M. A L., Camaro, P. J. C. and Salvanera A. P. Issues Paper on the Philippine Digital Commerce Market. PCC. (2020). Available at www.phcc.gov.ph/wp-content/uploads/2020/07/PCC-Issues-Paper-2020-03- Issues-Paper-on-the-Philippine-Digital-Commerce-Market.pdf 218 See generally Consumer Consumer GCash. (May 24, 2022 ) GCash Achieves New Milestone With Over 60M Registered Users. Globe (blog). Available at https://www.globe.com.ph/about-us/newsroom/consumer/gcash-new-milestone-over- 60m-registered-users.html#gref. 219 See generally Dumlao-Abadilla, Doris. (November 2, 2021). Mynt, Fintech Firm behind GCash, Reaches ‘Double Unicorn’ Status. Business Inquirer. Available at https://business.inquirer.net/333611/mynt-fintech-firm-behind-gcash-reaches- double-unicorn-status 85 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Certain conglomerates have established venture capital funds focused on digital firms, en- abling them to build diverse portfolios of digital products in multiple locations within the Philippines and the wider East Asia region. These digital venture capital firms have also invested in related services like big data analytics, enterprise resource planning software, and cloud-based solutions. Investments made by Philippine digital venture capital firms have eventually been ac- quired by multinational conglomerates, resulting in profitable exits. The country’s first venture capital fund has witnessed successful cases, such as the acquisition of a digital wallet app by an Indonesia-based conglomerate in 2019 and the acquisition of an online social reading platform by one of Korea’s largest digital conglomerates in 2021. Some conglomerates have established ven- ture capital funds focused only on digital firms. In spite of well-developed resources to review mergers, limited enforcement against anticompetitive practices hinders the ability of the Philippine Competition Authority to foster competition in digital markets Although being one of the last countries in the region to approve a competition law, the Phil- ippines has made significant progress in promoting competition through a battery of strate- gic reforms, including on merger control. The Competition Act was adopted by the Philippine Congress in July 2015 after more than fifteen years in the making. The Competition Act also result- ed in the creation of the Philippine Competition Commission (PCC), which is equipped with a man- date to prosecute anti-competitive behavior, limit negative effects of mergers and acquisitions and advocate for pro-competition reforms. Merger control activity ramped up rapidly following the passage of the PCA. Prior to the pandemic, the PCC was reviewing a healthy number of merger notifications220 and adopting some robust decisions.221 Relatedly, since the passage of the PCA, the merger regulatory framework has been further strengthened through the adoption of some important secondary rules. In 2018, guidelines were adopted to assist with calculating merger thresholds;222 notification of joint ventures;223 and parties whose transactions fall below prescribed thresholds. In 2019, the Expedited Merger Re- view Rules224 were adopted to provide a quicker (up to 15-day) review for mergers that do not raise material competition concerns, including mergers involving foreign-to-foreign parties, those where the merging parties have negligible presence in the Philippines and, more importantly, where merging parties had no overlapping activities, i.e. conglomerate mergers. However, certain measures adopted to ease costs of doing business in the fallout of the Covid-19 pandemic hindered the effectiveness of the merger regime. For a period of two years from the adoption of Bayanihan to Recover as One Act (“Bayanihan II”) in September 2020, the PCC had no ability to review mergers where the transaction value or combined turnover does not 220 As at May 2021, the PCC has received 218 notifications with an aggregate transaction value of P 3.85 trillion. 221 See generally PCC. (February 14, 2019). PCC Blocks Merger-to-Monopoly Deal between URC, Don Pedro-RHI Sugar Millers | Philippine Competition Commission. https://www.phcc.gov.ph/press-releases/pcc-blocks-merger-to-monopoly-deal- between-urc-don-pedro-rhi-sugar-millers/. 222 See generally PCC Guidelines, supra note 128. 223 See generally The Philippines Competition Commission. (September 09, 2018). Guidelines on Notification of Joint Ventures. https://www.phcc.gov.ph/guidelines-on-notification-of-joint-ventures/ 224 See generally PCC Rules on Expedited Merger Review, supra note 123 86 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 21. Mapping of Philippines Conglomerates 2021-2022 Legend digital services Finance/fintech Finance/fintech digital services SAP business one EC pay Caxe Clarity Entertainment/media 54,3% SAP S/4 Hana Mynt - G cash Xendit Element, Inc. E-commerce Prosync digital marketing digital services Coins ph EngageSpark Tourism Yondu Inc. 21, retail 4% Nextpay Flex by Finaxar crm/marketing The SMC hub GTI data centers Igloohome 10 0 Zap Philippines % Telecommunication finance/fintech 14,1% GTI ICT solutions entertainment LendoEFL Logistics BankCom Divestudio Lifetrack Medical Systems healthcare IVS.tv e-commerce real estate LotusFlare digital services Ayaland self-service portal Kumu ph ShopSM Savonix Food retail Finance/fintech @Home Skillshare Inc. Retail Waltermart Delivery LazadaLoans Z!ing Slashnext Finance/Fintech Goldilocks app LazadaWallet Finance/fintech e-commerce Snapcart transport/hailing real estate MyManilaWater 18 SMDCgoodguys Lazada Teridion N 20 real Estate BPIonline SHIP I Finance/fintech Transcelestial digital services Controller/Owner/Partial owner BDO online PARTNER e-commerce Cascadeo Kalibrr Digital platform-based firm ChinaBank online BeautyMnl Vigos Medix Connections represent GoRobinsons healthcare logistics ownership / JVs / investments / Squad solutions alliances / partnership etc. iPrice group Aide ikotMNL transport/hailing finance/fintech Squadzip GrabCar GrowSari Healthnow Mywaterbill Bagosphere logistics Etaily digital services GrabExpress crm/marketing SariSuki EasyTrip Dialpad e-commerce digital services GrabMart digital services Dibz Aiah MIESCOR Data Analyytics Ventures Inc. health food Indra Philippines, Inc. Spiralytics GrabFood Darwinbox Mwell real estate Finance/fintech Custormer Frontline Solutions Wavemaker Zipmatch GrabPay 29,6% Radius Telecoms Zuzu e-commerce Paylater by Grab finance/fintech Zalora Snapcart Bayad Center edamama Zyllem crm/marketing logistics finance/fintech Customer Frontline Solutions ava.ph ShopeeXxpress Tyme Yup.gg 8% 45,5% finance/fintech crm/marketing logistics ShopeePay Summit media digital services Entrego e-commerce ePLDT Expedock Shopee AGS Treedot Curotek Collecto Premium Point digital services food Multisys Technologies Aboitiz Data Innovation AngkasFood finance/fintech finance/fintech transport/hailing entertainment food Maya UnionDigital AngkasPassenger crm/marketing iwantTFC Foodpanda e-commerce logistics EPDS Kapamilya online UB Global Linker AngkasPadala e-commerce real estate e-commerce AngkasPabili Maya Mall e-rockserveonline Carousell Source: Authors elaboration 87 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges exceed PHP 50 billion, although PCC data suggested that transactions likely to substantially lessen competition are those with a value of PHP 2.5 million to PHP 10 billion.225 Moreover, Bayanihan II also suspended the ability of the PCC to claw back mergers that fall below prescribed thresholds for one year after its adoption, although this has been a critical tool to review problematic opera- tions in digital markets. In 2018, using its motu proprio power to review mergers below prescribed thresholds, competition concerns were found to arise in Grab’s acquisition of Uber, its main rival in the Philippines. While conglomerate mergers qualified for simplified review, since 2022 the PCC has shown increasing concern on the development of conglomerates. In May 2023,226 the PCC published its non-horizontal merger guidelines. The guidelines enunciate theories of harm related to family conglomerates. The Guidelines establish that family conglomerates can develop a predatory sub- sidization of its entities, driving competitors out of business and creating a reputation of tough- ness that discourages entrance.227 Although the PCC has not included specific digital consider- ations in the guidelines, they signal an increasing concern on the development of conglomerates in the country. In addition, in 2023, the PCC approved its “Guidelines for the Motu Proprio Review of Mergers and Acquisitions in Digital Markets.” The Guidelines identify the risks of digital mergers that would trigger a motu proprio review by the PCC, providing enhanced legal certainty to merg- ing parties.228 Beyond merger regulation but related to the online economy, the Philippines passed an act to regulate e-commerce activity. The Act highlights the advantages that e-commerce has for middle and small enterprises that gain access to new markets at lower costs.229 Nonetheless, in its explanatory note the act also identified the challenges that the digital economy presents, includ- ing lack of trust, weak internet and logistics infrastructure, and limited payment mechanisms.230 To address these challenges, the Internet Transactions Act creates an eCommerce Bureau to co- ordinate, monitor compliance, and supervise the implementation of the Act231 and establishes obligations for online businesses and e-commerce platforms. 225 See generally PCC. Mergers and the PCC during Covid. PCC, November 25, 2020. https://www.phcc.gov.ph/column42-bm- cjrb-mergers-pcc-baro/. 226 See generally PCC. Non-Horizontal Merger Review Guidelines. May 2023. https://www.phcc.gov.ph/wp-content/ uploads/2023/05/PCC-Non-Horizontal-Merger-Guidelines.pdf 227 See idem. 228 See generally PCC’s Draft Guidelines for the Motu Proprio Review supra note 138. 229 See generally The Philippines act Protecting Consumers and Merchants Engaged in Internet Transactions, Creating for this Purpose the Ecommerce. 2020. S.B. No. 159. https://legacy.senate.gov.ph/lisdata/3301729864!.pdf 230 See idem at p. 2 and 3. 231 See idem Sec. 5. 88 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 5. Thailand Regional digital conglomerates have played a significant role in the development of Thailand’s digital ecosystem while traditional offline conglomerates also show a relevant and diversified par- ticipation in these markets. With a merger control framework still to be further developed, efforts to embed competition in digital markets have been focused on ex ante regulation. Thailand shows significant and diversified participation of offline conglomerates in digital platform markets and substantial links between conglomerates. As in most of the countries analyzed, the presence of foreign digital platform conglomerates in Thailand is very strong. E-commerce B2C is dominated by two large foreign players that account for almost 100 percent of market share.232 Both conglomerates are vertically integrated into upstream and downstream segments of the e-commerce value chain, such as in logistics and technology solutions. They are also present in related markets such as electronic payments and e-wallets.233 One of them has specifically targeted fintech services, first by providing microloans to sellers in the platform (an example of embedded finance) and later setting up its Fintech and digital lending subsidiaries while expanding into other markets such as gaming and food delivery. By developing many adjacent digital platform businesses, regional digital conglomerates are looking to develop digital ecosystems in order to become ‘superapps’. The lead ride-hail- ing service in the country also offers food delivery, logistics, hotel and accommodation reserva- tions, and financial services. The OTT mobile communication and texting services leader provides e-commerce, delivery, ride hailing, streaming, and Fintech services such as e-wallet and e-insur- ance. Based on Refinitv data, the top five sectors targeted by Thailand’s conglomerate mergers include software publishers, custom computer programming services, internet service providers, motion picture and video production, and book publishers. However, the digital markets are also characterized by significant presence of traditional offline conglomerates. Out of the five countries analyzed, Thailand has the most important and diversified participation of offline conglomerates in digital platforms. Nevertheless, lo- cal offline conglomerates have entered digital platform markets strongly. In the B2B segment, important e-commerce platforms are part of large local offline conglomerates that also operate in the B2C e-commerce segments. The leading B2B platforms were acquired by local offline con- glomerates with presence in a diverse set of offline sectors. One of these groups, participating in retail, real estate, and hospitality, among others, is also the largest shareholder of the third largest B2C e-commerce platform launched in Thailand with a Chinese e-commerce company backed by Tencent. Another B2B e-commerce platform is part of the largest conglomerate in Thailand, with 232 See generally Leesa-Nguansuk, S. (2019, October 2). 2020 online trade set to hit B220bn. Bangkok Post. Available at https://www.bangkokpost.com/business/1921656/2020-online-trade-set-to-hit-b220bn. 233 Shopee and Lazada are vertically integrated to logistic services Shopee Express and Lex Express respectively. Both firms also own their own e-payment/wallets in ShopeePay (Airpay) and Lazada Wallet. 89 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 22. Top 25 industries Targeted in Conglomerate Mergers in Thailand over the 10- Year Period, 2012-2021 0 2 4 6 8 10 12 14 16 Software Publishers Custom Computer Programming Services Internet Service Providers Motion Picture and Video Production Book Publishers Internet Publishing And Broadcasting And Web Search Portals Electronic Shopping Wired Telecommunications Carriers Music Publishers Computer Facilities Management Services Wireless Telecommunications Carriers (Except Satellite) Cable and Other Subscription Programming Television Broadcasting Teleproduction and Other Postproduction Services Motion Picture and Video Distribution Professional and Management Development Training Computer Systems Design Services Data Processing, Hosting, and Related Services Sound Recording Studios Other Motion Picture and Video Industries Periodical Publishers Mail-Order Houses Computer Storage Device Manufacturing Source: World Bank staff analysis based on 2012-2021 Mergers and Acquisition data from Refinitiv (previously Thompson Reu- ters). presence in agro-industry, food, retail, telecom, media, finance, retail, logistics, and pharma, among others. Beyond e-commerce, offline conglomerates in Thailand have also entered Fintech, food de- livery, online travel booking, and even digital health. This has been done both through organic development of new business units but also through acquisitions and investments in already es- tablished players in digital platform markets.234 Banking conglomerates have started seamlessly integrating and developing Fintech but also expanding business to other digital sectors. For example, one of the most important offline banks participates in online food delivery platforms, travel agencies, and restaurant booking. It harnesses data collection and artificial intelligence (AI) from these platforms to develop services both in traditional and digital finance. Moreover, it has acquired a Thailand-based cryptocurrency 234 See Leesa-Nguansuk, S. (2021, December 3). CRC allots B4.5bn to buy Porto shares. Bangkok Post. Available at https:// www.bangkokpost.com/business/2225883/crc-allots-b4-5bn-to-buy-porto-shares. 90 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges exchange. It also owns platforms in food delivery and digital health. Another Thai bank entered Fintech markets through the development of its own platforms and has invested in several other platforms, ultimately participating in a wide range of digital sectors such as e-commerce and education, among others. Importantly it invested in a company with participation in logistics that has also developed its own e-commerce platform and created a Fintech service, which looks to provide accessible financial services to customers that are not covered by traditional banks. In this context, Thailand stands out for the great number of links between conglomerates in several digital and offline markets. Large regional digital conglomerates are linked with many of the most prominent digital platform firms, through direct investments in digital conglomerates and local offline conglomerates and their subsidiaries. Merger control in Thailand is recent as it became effective in 2018, limiting the ex- perience of the competition authority in handling complex cases. The current Thailand competition law, approved in 2017, established key elements to develop an effective institutional and regulatory competition framework. The Act created an indepen- dent enforcement agency – the Trade Competition Commission, renamed in 2022 as the Trade Competition Commission of Thailand (TCCT), supported by the Office of Trade Competition Com- mission (OTCC). The Commission can impose administrative penalties in cases that do not require the initiation of criminal proceedings and has issued secondary legislation on dominance, cartels, and unfair trade practices.235 Yet, merger control not only remains relatively new but is also challenging due to a combi- nation of multiple notification methods and low fines for lack of notification. Section 51 of the Act divides mergers and acquisitions among those that may significantly lessen competition (which require post-merger notification) and those that may result in the creation of a monopoly or dominant position (which require pre-merger notification). The difference between these 2 cat- egories is somehow blurry. Typically, those transactions that may significantly lessen competition are those that create/strengthen a dominant position. In addition, lack of post-merger notification only entails an administrative fine of USD 5000. TCCT has progressively increased its enforcement activities, but detailed guidance on the substantive assessment of mergers, including conglomerate mergers, is yet to be published. Complaints received by the TCCT doubled from 2020 to 2021,236 while the number of published decisions rose from 8 in 2021 to 43 during 2022.237 Since 2018, the TCCT has published rules on merger notification but not detailed guidelines on how to conduct substantive assessments. While competition enforcement and merger control experience on digital markets remains limited, TCCT has focused on providing guidance on unfair practices and imposing ex-ante 235 See at Thailand’s Trade Competition Act, supra note 106, Section 60. 236 See generally Luengwattanakit Pornapa et al.,(n.d) Cartels 2022 - Thailand | Global Practice Guides. Chambers and Partners (blog). Available at https://practiceguides.chambers.com/practice-guides/cartels-2022/thailand/trends-and- developments (last visited Mar 27, 2023). 237 Idem 91 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Figure 23. Mapping of Thailand Conglomerates 2021-2022 Legend food real estate digital services Finance/fintech digital services Finance/fintech tourism digital services digital services e-commerce Food Hall Centara Convention XCommerce Shopeepay BTS Smart Card Rabbit Line Pay Acend Travel XCommerce XCommerce Thai post Man Entertainment/media Rabbit Rewards crm/marketing Shipnity logistics Eat Thai S.P. Shipnity Spaylater Rabbit Cash Shipnity E-commerce Egg Thai Postal Services LOFT Tripline Zortout Sea Insurance Rabbit Care retail Zortout Zortout Tourism e-commerce Line Shop Fuze Post tourism Food Wynn Rabbit Inusre Patavanij Acommerce logistics communication Ritz CRG, 1312 e-commerce crm/marketing e-commerce logistics Flash Express crm/marketing Line Shop and Line Shopping WE-mall Dusit OOTOYA Shopee V-Click Lazada Express Giztix Logistics logistics Line Merchant We love shopping Floresta Brown Ask Direct Giztix Flash Fulfillment digital services Shopee Express Goodchoiz e-commerce SF tourism transport/hailing Shippop Finance/fintech F commerce Food tag Thai Giztix Line Man e-commerce real estate True Money Wallet Lazada Finance/fintech Telecommunication CPN Centara Shippop Line Man Taxi transport/hailing Ascend Money Finance/fintech Flash Money Retail SF Centra Line Man Car Shopee Food Lazpay Flash Pico Finance/Fintech entertainment NANO MEGA Cosi, Refresh Shopee Express Line TV digital services Hellopay transport/hailing GATEWAT Egg Digital real Estate Unilever House ADEN Controller/Owner/Partial owner True IDC Digital platform-based firm Connections represent ownership / JVs / investments / alliances / partnership etc. digital platform Choco Finnomena transport/hailing SYNQA Grab Car GRAB SEA Grab Taxi transport/hailing telecommunication real estate food Peak PORTO Grab Express True Move H TRUE Digital Park CP Bulk digital services Baania GRAB KSC e-commerce CPF Grab Assistant Horganice logistics QQ retail TRUE Digital Chia Tai telecommunication Taejai Grab Gifts Kokuyo True Corp Tribehired Central Department Stores finance/fintech TRUE International Comm. Bellisio, Atkins Lotus Mobile Grab Express Honest Bee Kerry XL Dolphin finance/fintech crm marketing Finance/fintech Robinson digital services C.P.Food NOCNOC e-commerce Grab Hotels True Money Wallet MAM Krungsri e-commerce EGG Digital ASCEND central.co.th Powerbuy Food Food Service JD Finance/fintech GS Travel UCHOOSE All NOW TRUE Food Robinson Officemate Grab Pay BuzzBees Joy Food Hattha logistics digital platform #Supernap Zipmex Powerbuy B2S Grab Rewards TRUE Coffee All Cafe Food Panda Logistics Adezy OMISE SB TRUE INCUBE retail Officemate Lan Chi crm/marketing Grab Finance Dex True You Maxzi Six Network U-Vein entertainment 7-11 Shopee Pay Lotus Money and Insurance Panda Marketing retail B2S ThaiWatsadu,Global,Homeworks e-commerce TRUE 4U Indoguna System Stone True Life Lotus's entertainment and education JD Central Food Grab Food Tidlor MEB TOPS Peak Panyapiwat 7-11 Taxi Mail Hero Kitchens TRUE Football crm/marketing digital services Daywork Makro Qchang ThaiWatsadu,Global,Homeworks Big C, Thailand and Viet Nam Grab Mart Egg Suksapiwat real estate Finnovate Hero Could Kitechens Kooup TRUE VISION ARO Queq retail logistics Synergy TOPS Watts ChatStick transport/hailing Klook SILOT Grab Merchant TRUE MUSIC ALL Food Panda Tunjai True Leasing Indoguna Lotus ChatStick Big C Viet Nam Matsumoto Kiyoshi crm/marketing Fillsgood BEARTAI e-commerce Zitrus APPMAN Panda Pro True Ryde digital services finance/fintech Watts MUJI Grab Business ChangTrixget logistics Egg Digital 24 Shopping Thai Smart Card Freshket Wisesight e-commerce tourism Arincare Skooldio, Central Food Retail E-commerce Family Mart Panda Store Grab Ads True Logistics Crave Go Soft Shop at 7 Counter Service Peak Chiwii Globish Source: Authors elaboration 92 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges obligations. TCCT has focused particularly on e-commerce and food delivery platforms. This in- terest includes the “Notice on Guidelines for the Assessment of Unfair Trade Practices between Food Delivery Digital Platforms and Restaurants” that limits companies in this market from abus- ing their market power and extracting unfair profits from restaurant operators.238 Through the Dig- ital Platform Service law, Thailand imposed obligations on digital platforms including the duty to notify the Electronic Transaction Development Agency of Thailand before they start operating in the country. The Decree also imposes risk management and transparency obligations. 238 See generally Thailand’s Trade Competition Commission. Notice on Guidelines for the Assessment of Unfair Trade Practices between Food Delivery Digital Platforms and Restaurants. B.E. 2563. October 22, 2020. https://www.tcct.or.th/assets/ portals/1/files/NoticeonUnfairPracticesinFoodDelivery.pdf 93 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annex B. Competition authorities’ review of conglomerate mergers Conglomeration allows firms to be more efficient in their operations, providing benefits to consumers ranging from new products to lower prices.239 These efficiency advantages include realizing economies of scale and scope, overcoming institutional issues in developing countries,240 providing an internal capital market,241 risk sharing,242 and facilitating access to international cap- ital markets.243 Conglomerates can also provide benefits to consumers by uniting complementary products or services that may be offered at a lower price if bundled by the same firm.244 This may result in transaction cost savings by enabling customers to obtain several products or services from a single supplier (‘one-stop-shopping’).245 239 See at Cheng, T. K. (2017). Sherman vs. Goliath? : Tackling the conglomerate dominance problem in emerging and small economies—Hong Kong as a case study. Northwestern Journal of International Law & Business, 37(1), 35.. 240 Through intragroup transactions, the need for interactions with external parties is eliminated, minimizing reliance on legal and judicial systems. See generally Khanna, T., & Yafeh, Y. (2007). Business groups in emerging markets: Paragons or parasites? Journal of Economic Literature, 45(2), 331–372; Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. The Quarterly Journal of Economics, 106(1), 33–60; Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. The Journal of Finance, 55(2), 867–891. 241 Within conglomerate sources of funding are important in countries where capital markets are less sophisticated or not liquid. See Claessens, et al. supra note 5, page 1-2; Khanna et al., supra note 239, at 126; Almeida, H. V., & Wolfenzon, D. (2006). A Theory of Pyramidal Ownership and Family Business Groups. The Journal of Finance, 61(6), 2637–2680. 242 Diversified operations allow conglomerates to spread operational risks across different business lines. See generally Khanna, T., & Yafeh, Y. (2005). Business groups and risk sharing around the world. The Journal of Business, 78(1), 301–340. 243 See generally Masulis, R. W., Pham, P. K., & Zein, J. (2011). Family business groups around the world: Financing advantages, control motivations, and organizational choices. Review of Financial Studies, 24(11), 3556–3600. 244 This effect is similar to the double marginalization elimination of vertical integration and is known as the ‘Cournot effect’. See generally Cournot, Augustin. 1838. The Mathematical Principles of the Theory of Wealth. Translated by N. T. Bacon. Reprinted 1927. (Macmillan : Pp. 209. 8s. 6d.) 245 European Commission (2008), supra note 34, at para. 14. 94 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Box 6. Classification of mergers and acquisitions Mergers are usually categorized according to the economic relation of the parties to the transaction: horizontal, vertical, and conglomerate. Horizontal mergers and acquisitions are those in which the parties to the transaction operate in the same market or markets. The parties to the transaction are direct competitors in such mar- kets. The transaction, in consequence, eliminates a direct competitor that is either acquired by or merged with the acquiring company. The effects of horizontal mergers are usually divided between unilateral and coordinated. Unilateral effects include those caused solely by the elimination of a competitor through the merger operation. By eliminating a competitor an undertaking can in- crease its market power, perhaps giving the merged enterprise a dominant position in the market. Coordinated effects may occur when the elimination of a competitor in the market may facilitate the interaction among firms in the market. These effects can be offset if the parties to the trans- action demonstrate that the operation generates efficiencies, that could only be achieved through the consolidation of these companies. These may include the development of new or improved products, combination of complementary assets that could improve quality or enhance services, among others. Vertical mergers and acquisitions are those in which the parties to the operation are not com- petitors in the same level of the value chain but hold a supplier/customer relationship. The parties are active in the same supply chain but operate at different levels. Vertical operations are seen as efficiency enhancing. Vertical mergers can reduce transaction costs and generate synergistic improvements in the enterprise processes. Nonetheless, some vertical operations can also have anticompetitive effects. They can raise or create barriers to entry or facilitate collusion. For exam- ple, an integrated enterprise could risk foreclosure and discrimination of competitors, especially if such provider is capable of cutting off competitors from access to key upstream or downstream markets. Conglomeration mergers and acquisitions are those where the merging parties are not mergers between firms that are in a relationship which is neither horizontal (as competitors in the same relevant market) nor vertical (as suppliers or customers). While products may be totally unrelat- ed, they may also be complementary products246 or products involving a common pool of buyers, which have the same end use for the products. Like vertical mergers, conglomerate mergers are usually considered efficiency enhancing. Despite this presumption, conglomerate mergers can also be harmful to competition. Bundling and tying, data harnessing, and increasing collusion are some of the risks that can arise form conglomerate operations. Source: European Union, Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, (2004/C 31/03); Department of Justice & Federal Trade Commission. Horizontal Merger Guidelines. August 19, 2010. 246 Complementary products are those that cannot function without the other due to technical restrictions (technical complements), products that are consumed together (economic complements) , and when products form part of a range which downstream players must carry (commercial complements). See at OECD, Portfolio Effects in Conglomerate Mergers (DAFFE/COMP (2002)5), 24 January 2002, p. 7; Neven (2005) supra note 59, p. 7. 95 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Large and diversified conglomerates that reach offline and online markets may support new business models and efficiencies. For example, digital platforms that originated their business model in e-commerce might now be looking to enter new services such as electronic payments, mobile money, and other digital financial services (see for example Alibaba, Shopee, and Lazada). Digital platforms might look to enter other digital platform markets related to services such as passenger transport. Additionally, digital players might also be expanding their presence as large conglomerates to offline sectors of the economy such as brick and mortar retail (for example, Amazon’s acquisition of Wholefoods) or traditional financial services in banking and insurance. At the same time, conglomerates already existing in traditional offline markets might be looking to enter digital markets by establishing their own digital platforms. An example of this would be a traditional financial sector player looking to establish Fintech solutions and leveraging its large market share and penetration in offline channels to the digital economy.247 There have also been offline conglomerates involved in retail successfully entering Fintech markets, for example Femsa (Oxxo) in Mexico.248 Authorities have traditionally viewed conglomerate mergers as less likely to cause anticom- petitive effects, thus often granting more lenient treatment. Unlike horizontal and vertical mergers, conglomerate mergers are less likely to generate changes in market structures in ways that adversely affect the degree of competition in product markets. Thus, conglomerate mergers do not typically raise the risks of increased market power that may exacerbate unilateral effects, i.e. the ability of firms to abuse their dominant position or foreclose upstream or downstream markets,249 or coordinated affects, i.e. the ability of merging parties to collude in the aftermath of the operation. In this context, competition authorities have predominantly focused on efficien- cies linked to such operations. The E.U., for example, has argued that conglomerate mergers are “generally less likely to significantly impede effective competition than horizontal mergers.”250 and determined certain market share thresholds under which the merger would very unlikely dam- age competition. Australia gives a more lenient treatment to conglomerate mergers since they “(…) will allow firms to achieve efficiencies and result in better integration, increased convenience and reduced transaction costs.”251 Japan’s 2019 amendment to the “Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination” establish that conglomerate mergers “(…) do not entail decreasing the number of competitors in the relevant market and are generally less likely to cause competitive problems than horizontal mergers.”252 Yet, competition authorities also acknowledge that, under certain circumstances, conglom- erate mergers can be harmful to competition. Regulators and academics alike have highlighted 247 See generally Capgemini & EFMA. (May 26, 2021). As FinTech Firms Become Increasingly Profitable, Traditional Banks Counter with Branded Digital-Only Subsidiaries. Capgemini (blog). https://www.capgemini.com/news/press-releases/as- fintech-firms-become-increasingly-profitable-traditional-banks-counter-with-branded-digital-only-subsidiaries-2/. 248 See generally Torras, C. A. (2021, March 5). Oxxo Enters the Fintech Ecosystem with its Digital Wallet Spin. Fintech Collective (blog). https://news.fintech.io/post/102gsil/oxxo-enters-the-fintech-ecosystem-with-its-digital-wallet-spin. 249 See generally European Commission. (2004). Guidelines on the assessment of horizontal mergers under the Council Regulation on the Control of Concentration between Undertakings, (2004/C 31/03). 250 See at European Commission (2008) supra note 34 at para. 11. 251 See at Australian Competition and Consumer Commission, Merger Guidelines. (2008). p. 25, available at https://www. accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF. 252 The Japanese regulation points to possible competitive problems related to conglomerate mergers, including abuse of dominance and cartelization. However, these effects are seen as less likely in a conglomerate merger than in a horizontal one. See at OECD. (2020). Note by Japan, supra note 74, p. 6. 96 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges that conglomerate mergers could impact markets mainly related to the foreclosure of potential and actual competitors.253 For example, the European Commission expressed concerns in several important cases even before the prominence of the digital platform economy (See Tetra Laval/ Sidel and General Electric/Honeywell mergers).254 The main concerns from conglomerate merg- ers have primarily been related to potential foreclosure of competitors. A dominant provider of a product or service could leverage its dominance in one market to increase sales in another in which the firm is not dominant by conditioning the sales of the first one to the purchasing of the non-dominant product and potentially limiting interoperability with competitors.255 This was the approach in the New Zealand’s Commerce Commission analysis of the Vodafone/Sky Network; in this case the authority concluded that the possibility of bundling different telecommunication ser- vices would limit switching by consumers, increasing barriers to entry. (For more detail on these cases see Box 6). 253 The debate surrounding the effects of conglomerate mergers dates back to the 70s with a wave of concentration and the rise of conglomerates that expanded to new and unrelated markets, particularly in the United States. Regulators, policymakers, and academics debated whether conglomerate mergers should be treated as harmful to competition, given the potential foreclosure effects of these mergers in adjacent markets. See generally Macinttyre, Everette. (1966). Conglomerate Mergers and Antitrust Laws. Federal Trade Commission. Available at https://www.ftc.gov/system/files/ documents/public_statements/683731/19661202_macintyre_conglomerate_mergers_and_antitrust_laws.pdf 254 See generally European Commission Case No COMP/M.2416 TETRA LAVAL / SIDEL; European Commission Case No COMP/M.2220 General Electric/ Honeywell 255 See at OECD. 2020. Roundtable on Conglomerate Effects of Mergers - Background Note, DAF/COMP(2020), p. 11; Adams, W. J., & Yellen, J. L. (1976). Commodity bundling and the burden of monopoly. The Quarterly Journal of Economics, 90(3), 475, argued that variable cost plays a central role in analyzing the effects of bundling “if bundling induces consumers to purchase products that they value less than the corresponding marginal cost of production, it is more likely to be negative for consumer welfare.” or Bourreau and Streel (2019) supra note 52 argued that if dominant providers produce several products, a competitor would have to produce both products in order to compete, disincentivizing investment in innovation and firms from entering the market if they cannot offer such complementarity. Available at https://doi. org/10.2139/ssrn.3350512 97 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Box 7. Conglomerate merger cases worldwide and competition concerns In 2017 New Zealand’s Commerce Commission analyzed the Vodafone / Sky Network Televi- sion transaction. The merger would have involved combining Sky’s pay television businesses with Vodafone’s broadband and mobile services operations. The merger included a combination of vertical and conglomerate effects. The Commerce Commission considered whether Vodafone’s dominant position in premium live sports content would allow the company to foreclose competi- tion in telecommunication services.256 The Competition Authority specifically considered the con- temporary roll out of ultra-fast broadband (UFB), which incentivized users to switch providers. By bundling its T.V. and telecommunication services, Vodafone could attract consumers and prevent switching as rivals would not be able match or improve the bundles offered by the merged com- pany. The inability of rivals to compete in attracting consumers from Vodafone would diminish the pool of potential consumers, thus limiting the rival’s growth and development. The New Zealand Commerce Commission did not authorize the merger.257 The Commission concluded that bundling conglomerate services would allow the dominant provider to retain its consumers and attract new ones since its competitors could not replicate the bundle or offer better conditions. In 2017, the Japanese Federal Trade Commission analyzed the conglomerate effects of the merg- er between Broadcom and Brocade. Brocade manufactured and supplied intermediary services that allowed servers and storage to connect to communication network systems. Broadcom man- ufactured adapters that were installed on servers. The Commission was concerned that the merg- er could foreclose the adapter market by limiting interoperability for competitors, preferencing Brocade’s intermediary services over those of competitors. Additionally, the JFTC argued that the operation would provide access to confidential information by the merged entity to that would give them an advantage over competitors in the adapter market. The Competition Commission conditioned the merger to the interoperability of the adapters for competitors equivalent to the one the merging entity would give to its services and to the confidentiality of the information among its own businesses.258 As determined by the JFTC, access to confidential data or restricting interoperability was another way through which conglomerate mergers could harm competition in either both or at least one of the markets involved. The European Commission analyzed the merger of Dentsply and Sirona in 2016. Dentsply is a provider of dental consumables, while Sirona was a provider of dental technology and equipment. 256 See generally Ultra-Fast Broadband NZ | UFB Pricing, plans, maps, speeds, insights, and news. All about New Zealand’s Ultra-Fast Broadband (fiber Internet) initiative. Including the Rural Broadband Initiative (RBI), available at https://ufb.org. nz/ (last visited Oct 12, 2022). 257 See generally Commerce Commission of New Zealand. Determination in the Vodafone Europe B.V. and Sky Network Television Limited [2017] NZCC 1 Sky Network Television Limited and Vodafone New Zealand Limited [2017] NZCC 2. Project nos. 11.04/16008 and 16009. (2017) https://comcom.govt.nz/__data/assets/pdf_file/0026/76922/2017-NZCC-1-and-2- Vodafone-Europe-B.V.-and-Sky-Network-Television-Limited-Clearance-determination-22-February-2017.pdf 258 See at OECD. 2020. Note by Japan supra note 74 at p. 8. 98 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges The merger involved some horizontal overlap but the E.U.’s Competition Authority did not focus on the horizontal effects. The Commission focused on whether the merger could limit innovation in the involved markets and determined that the merged entity could foreclose access to Sirona’s products, forcing Dentsply to be the primary standard for dental equipment and disincentivizing users to develop new standards or products that compete with those of the merged entity. In the long term, the merger would limit the pressure from competitors, reducing the incentives of the dominant merger platform to innovate.259 Source: Commerce Commission of New Zealand. Determination in the Vodafone Europe B.V. and Sky Network Television Limited [2017] NZCC 1 Sky Network Television Limited and Vodafone New Zealand Limited [2017] NZCC 2. Project nos. 11.04/16008 and 16009. (2017); OECD, Conglomerate effects of mergers – Note by Japan, DAF/COMP/WD(2020)3; European Commission, DG Comp, Case M.7822 - Dentsply/Sirona (2016), para. 128 Nevertheless, conglomerate mergers rarely trigger a deeper review or approval with condi- tions. For instance, from 2015 to 2019 the EU Commission imposed remedies in 117 merger cases, but out of these operations only six involved conglomerate effects,260 either alone or in combina- tion with other theories of harm.261 Four of those six cases involved interoperability concerns. 262 Similarly, most conglomerate mergers in South Africa are cleared in Phase one. Phase one involves mergers of low complexity in which competition concerns are not likely to arise. In their analysis of very complex transactions, only 14 percent involved conglomerate mergers. In particular, conglomerate mergers often benefit from simplified merger reviews. Simplified merger procedures reduce the administrative burden caused by merger analysis both for author- ities as well as for merging parties. 263 Under this framework, the Competition Authority only an- alyzes the effects of the merger in a broad and limited way, based on the assumption that opera- tions notified through this procedure do not typically raise competition concerns. Operations that may be reviewed through a simplified procedure vary from country to country; many jurisdictions, 259 See at European Commission, DG Comp. 2016. Case M.7822 - Dentsply/Sirona (2016), para. 128 https://ec.europa.eu/ competition/mergers/cases/decisions/m7822_494_3.pdf. 260 These six cases include the following ones: European Commission Decision of 20 April 2016 in case M.7873 – Worldline/ Equens/Paysquare; European Commission. 2016. Dentsply/Sirona, supra note 258; Commission Decision of 6 December 2016 in case M.8124 - Microsoft/LinkedIn; Commission Decision of 12 May 2017 in case M.8314 - Broadcom/Brocade; Commission Decision of 18 January 2018 in case M.8306 - Qualcomm/NXP Semiconductors; Commission Decision of 12 November 2019 in case M.9064 – Telia/Bonnier Broadcasting. 261 See at OECD. (2020). Note by the European Union, supra note 77, p. 8. 262 See Idem 263 As detailed by the E.U. Commission in 2013, the simplified review process allowed the Commission to reduce the number of analyzed mergers between 60% to 70%, lowering costs for notifying companies while expediting the process of the mergers that had to be notified. See generally European Commission. (2013). Mergers: Commission adopts package simplifying procedures under the E.U. Merger Regulation- Frequently asked questions, European Commission, available at https://ec.europa.eu/commission/presscorner/home/en (last visited Oct 14, 2022). 99 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges including EU, Brazil, and Mexico, include conglomerate mergers. The EU’s simplified procedure264 applies to mergers in which neither of the parties are engaged in upstream or downstream busi- ness activities in the same product or geographic area. The antitrust regulation in Brazil holds a similar procedure, allowing companies to avoid the full review of the CADE, Brazil’s competition watchdog, when companies do not overlap in a horizontal market or would be vertically integrated after the merger.265 Mergers notified through simplified procedures can be moved to a full analysis if the competition authority deems it could have anti-competitive effects. This is the case of, for example, China’s Guiding Opinions on the Notification of Concentration of Undertakings Subject to Simplified Procedure, which allow the State Administration for Market Regulation to move a merger review to full analysis if, for example, it finds it complex to determine the markets involved in the transaction.266 However, such moves are rare, and simplified reviews have been a key avenue for conglomerate mergers to be approved with relatively light reviews.267 264 See at European Union. (2004). Simplified procedure for the treatment of certain concentrations under Council Regulation (E.C.) No 139/2004, p. 1 art. 5, available at https://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri=CELEX:52013XC1214(02)&from=EN 265 See at Brazil, Conselho Administrativo de Defesa Econômica, Resolution no. 33, April 14 2022, Art. 1. Available at https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_ consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddZozxluGvwpB7_ LuyGkmtFSH2CyhNbaBLlEzDwOIl5jXAlM0VRH1TaaKgVtU4N5ESijhSaxKBEl0R6FN0P5571e 266 See China. (2008). Guiding Opinions on Reporting Simple Cases of Concentration of Undertakings. Available at https:// gkml.samr.gov.cn/nsjg/fldj/201907/t20190726_305194.html 267 An example of this can be found in China where 99% of simplified merger notifications are approved within three months from the initial submission. See generally Foster, A. L., & Zhu J. (December 13, 2022). Demystifying China’s Merger Review Process. Skadden, Arps, Slate, Meagher & Flom LLP (blog). Available at https://www.skadden.com/insights/ publications/2022/12/2023-insights/more-intense-merger-reviews/demystifying-chinas-merger-review-process. 100 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annex C. Methodology to map offline and digital conglomerates in selected EA countries The countries under study were developing economies in EA chosen based on three factors: 1) the characteristic/historic presence of conglomerates in these economies; 2) higher lev- els of digital transition when compared to other countries in the region; 3) having a more developed competition policy and enforcement. Additionally, Korea was included as one the countries researched, since it is characterized by a longer history of large digital conglomerates, and as reference point for future research in terms of policy related to conglomeration. Therefore, the conglomerate mapping research focused on: Korea, Viet Nam, Malaysia, Thailand, and the Philippines.268 The research identifies and maps the main local and regional269 conglomerates with presence in digital platform markets in each of the countries studied. For this effort, country-based ex- perts, familiar with the main business groups in each country and with an understanding of com- petition, helped identify the largest conglomerates (both “originally offline” and “originally digi- tal”)270 in their respective country. Additionally, they identified which conglomerates are present in digital markets, with special emphasis in digital platforms, and mapped out each conglomerate with its subsidiaries (both offline and digital). Each subsidiary was identified by its commercial name, sector and the products/services it offers. Firms were also categorized as state owned271 or private firms. Additionally, as far as data permitted, research looked to understand what strate- gies offline conglomerates have pursued to enter digital markets and what strategies online con- glomerates have pursued to expand their presence to other digital sectors or even offline (e.g. within conglomerate development of new business segments, mergers and acquisitions (M&A), startup acquisitions, investments). Finally, where information was available, linkages between 268 Indonesia was originally part of the list of countries to be studied. Nevertheless, due to the difficulty of finding an available local expert consultant with knowledge and expertise regarding conglomeration and digital platform markets in the country, it was not possible to collect all the required information in a comprehensive and timely manner. Therefore, Indonesia was dropped from the mapping. 269 Local conglomerates are those that originated in each country analyzed. Regional conglomerates include those large business groups with important presence in markets, especially digital platform markets, across several countries in the EA region. Digital conglomerates that are worldwide in nature, such as Google or Meta, were not the focus of the study, so were not included in the mapping. 270 “Originally offline” conglomerates include those business groups which came into being and developed in traditional offline sectors in the economy. “Originally digital” conglomerates are firms that have digital platform as their main and original business unit. 271 State owned firms include those fully owned and controlled by the government and also those in which governments has invested, for example through government investment funds. 101 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges conglomerates participating in digital markets (e.g. investments, M&A, joint ventures, established partnerships) were identified. All this information was consolidated in a “database” for each coun- try. Since the development and growth of digital platform sectors has exploded in the past ten to 15 years, the analysis concentrated on this time period, with a specific focus on conglomerates’ behavior related to digital platforms in EA in the last ten years. A map of the conglomerates and their linkages was created as a visual representation for each country’s conglomerate presence in digital platform markets (see Annex A). The qualitative nature of this study, and the fact that only publicly available information that could be accessed through desk research was consulted, meant that research required ad- aptation to each country’s context, particularities, and, most importantly, data availability. Therefore, there was no step-by step approach that could be applied to all countries. For ex- ample, while for Korea and Viet Nam there exists an official list of firms272 that are considered conglomerates or that are identified as the largest business groups in the country, this is not the case for the rest of the countries. In the end, the analysis considered between ten and fifteen busi- ness groups that were viewed, by the country -based experts, as the most relevant conglomerates with presence in digital platform markets. Examples of sources consulted include: ——Data from governmental registries of firms ——Companies’ websites ——Public companies’ reports to investors ——News articles that touched upon investments, mergers, expansions, new business lines, etc. ——Industry reports (e.g. by consulting firms/think tanks) ——Market sector reports ——Competition authority’s cases/mergers reviewed This research has limitations, principally linked to a general lack of data and to the fact that avail- able data comes from secondary sources. Relevant primary data, due to its privileged and sensitive nature, is usually not publicly available. Therefore, the knowledge of the local experts conducting the research was highly relied upon. This was complemented by parallel and corroborating desk research conducted by the coordinating team. The shortcomings brought by the qualitative nature of the study were also mitigated through corroboration of the ensuing maps and country briefs with the review of experts who are familiar with conglomerate structures and market dynamics in the region. The maps have not been verified by the firms themselves. 272 In Korea the Korea Fair Trade Commission has designated 71 business units with assets worth 5 trillion won or more as large business groups that are subject to special corporate disclosure. Corporate Portal provided by Korea Fair Trade Commission: https://www.egroup.go.kr/egps/wi/mainPage.do. In Viet Nam there is a national business registration portal where the largest groups can be identified: https://dangkykinhdoanh.gov.vn/en/Pages/default.aspx. 102 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annex D. Identification of conglomerate mergers The conglomerate merger analysis uses a proprietary data from the Refinitiv (previously known as Thompson & Reuters) mergers and acquisitions (M&A) database, combined with desk research to identify some (but not all) industry classification codes that are recognized in the literature as digital market related. Refinitiv M&A data The M&A data is from the Refinitiv Eikon M&A database, a database of global public and private M&A activities since 1979 for US transactions and 1985 for non-US transactions. The database tracks changes in economic ownership at the ultimate parent level involving a purchase of at least a 5 percent stake (or 3 percent with a value of at least US$1 million) in active companies. The covered transactions include mergers and acquisitions, leveraged buyouts, tender offers, re- verse takeovers, asset sales and divestitures, stake purchases, stock swaps, spinoffs and split- offs (a.k.a. demergers), privatizations, repurchases, and bankruptcy liquidations. The database also includes transactions where the target is “seeking a buyer” and those involving “rumored deals”. However, we disregard these since we analyze only completed and unconditional M&A transactions, whether the value is disclosed or not. Refinitiv sources the data through direct deal submissions from global banking and legal contributors, complemented with extensive research by its analysts. Conglomerate mergers identification To identify conglomerate mergers, we follow the M&A literature, which commonly classifies merg- ers into three main types: horizontal, vertical, and conglomerate. ——Horizontal merger transactions are typically defined as deals where both the acquirer and tar- get companies operate in the same primary industry. We use the six-digit North American In- dustry Classification System (NAICS) codes to identify industries. ——Vertical mergers are transactions where the acquirer and target companies operate in different stages (i.e., upstream and downstream) or six-digit industries of the same supply chain. In ver- tical mergers, the acquiror’s (or target’s) primary product is a key component or complement of the target’s (or acquiror’s) primary product. To identify industries that are vertically related, we follow the literature and use an input-output (IO) table. Finding uniform IO tables for a large 103 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges group of countries is quite difficult, so we follow others in the literature and use the benchmark input-output (IO) tables for the U.S. economy published by the U.S. Bureau of Economic Analy- sis (BEA). Specifically, we use the Use Table (after redefinitions and valued in producers’ prices) for the year 2012. The Use Table is a matrix containing the dollar value of each commodity pur- chased by industry , consumers, and federal and local governments. Following Fan and Lang (2000) and others in the literature (see Acemoglu, Johnson and Mitton 2009), we calculate , which is the dollar value of industry ‘s output required to produce a dollar worth of industry ‘s output. This is just dividing each matrix by the dollar value of industry ’s total output. Similarly, we calculate , which is the dollar value of industry ‘s output required to produce a dollar worth of industry ‘s output. Again, this is just dividing each matrix by the dollar value of industry ’s total output. To obtain the vertical relatedness coefficient of industries and , we take the max- imum value of the two input requirement coefficients. That Is, . We then categorize industries and as vertically related if the vertical relatedness coefficient is at least 1 percent. ——Conglomerate mergers are transactions where the acquirer and target companies operate en- tirely in industries whose supply chains are unrelated. We defined them as deals that are not horizontal or vertical, as defined above. That is, the acquirer and target companies operate in different six-digit NAICS industry codes where the vertical relatedness coefficient is less than 1 percent. The above definitions of horizontal, vertical, and conglomerate mergers do not exclude cross-bor- der M&A transactions. The classifications only use acquirer and target firms’ primary industry code and do not account for their secondary industry codes. Table 7. NAIC Codes and Descriptions used to identify Digital Industries Target 2-digit Primary Target Target 6-digit Primary NAIC Description NAIC Description 6-digit Primary NAIC Code Manufacturing 334111 Electronic Computer Manufacturing Manufacturing 334112 Computer Storage Device Manufacturing Wholesale Trade 425110 Business to Business Electronic Markets Retail Trade 454111 Electronic Shopping Retail Trade 454112 Electronic Auctions Retail Trade 454113 Mail-Order Houses Information 511110 Newspaper Publishers Information 511120 Periodical Publishers Information 511130 Book Publishers Information 511140 Database and Directory Publishers Information 511191 Greeting Card Publishers Information 511199 All Other Publishers Information 511210 Software Publishers 104 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Target 2-digit Primary Target Target 6-digit Primary NAIC Description NAIC Description 6-digit Primary NAIC Code Information 512110 Motion Picture and Video Production Information 512120 Motion Picture and Video Distribution Information 512191 Teleproduction and Other Postproduction Ser- vices Information 512199 Other Motion Picture and Video Industries Information 512210 Record Production Information 512220 Integrated Record Production/Distribution Information 512230 Music Publishers Information 512240 Sound Recording Studios Information 512290 Other Sound Recording Industries Information 515111 Radio Networks Information 515112 Radio Stations Information 515120 Television Broadcasting Information 515210 Cable and Other Subscription Programming Information 517110 Wired Telecommunications Carriers Information 517210 Wireless Telecommunications Carriers (Except Satellite) Information 517410 Satellite Telecommunications Information 517911 Telecommunications Resellers Information 517919 All Other Telecommunications Information 518111 Internet Service Providers Information 518210 Data Processing, Hosting, and Related Services Information 519110 News Syndicates Information 519120 Libraries and Archives Information 519130 Internet Publishing and Broadcasting and Web Search Portals Information 519190 All Other Information Services Professional, Scientific, and 541410 Interior Design Services Technical Services Professional, Scientific, and 541420 Industrial Design Services Technical Services Professional, Scientific, and 541430 Graphic Design Services Technical Services Professional, Scientific, and 541490 Other Specialized Design Services Technical Services 105 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Target 2-digit Primary Target Target 6-digit Primary NAIC Description NAIC Description 6-digit Primary NAIC Code Professional, Scientific, and 541511 Custom Computer Programming Services Technical Services Professional, Scientific, and 541512 Computer Systems Design Services Technical Services Professional, Scientific, and 541513 Computer Facilities Management Services Technical Services Professional, Scientific, and 541519 Other Computer Related Services Technical Services Professional, Scientific, and 541810 Advertising Agencies Technical Services Professional, Scientific, and 541840 Media Representatives Technical Services Educational Services 611410 Business and Secretarial Schools Educational Services 611420 Computer Training Educational Services 611430 Professional and Management Development Training Other Services (except Public 811211 Consumer Electronics Repair and Maintenance Administration) Other Services (except Public 811212 Computer and Office Machine Repair and Main- Administration) tenance Other Services (except Public 811213 Communication Equipment Repair and Mainte- Administration) nance Other Services (except Public 811219 Other Electronic and Precision Equipment Repair Administration) and Maintenance Source: World Bank staff compilation based on desk research. Note: The list of NAIC codes used to identify digital industries may not be exhaustive of digital industries and may contain codes related to the broader digital economy. 106 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Annex E. Digital Antitrust cases in EA-5 Countries Table 8. Digital antitrust cases in the EA-5 cases Country Year Type of Brief description Remedies/conditions practice Korea 2020 Merger Delivery Hero’s acquisition of Korean The Korea Fair Trade Woowa Brothers (Baemin) was condition- Commission approved the ally approved. The deal raised competition takeover on the condition concerns because it would leave Delivery that Delivery Hero divests Hero, which already owns Baemin’s main from Yogiyo. rival, Yogiyo, with control of as much as 90 % of SK’s online food delivery market. Korea 2020 Abuse of Yogiyo unilaterally implemented the mini- Cease practice and not im- dominance mum price guarantee policy to the delivery plement MFN clauses. The restaurants registered with its app, through KFTC also imposed a fine of Most-favored which the company prohibited the restau- USD 382 million nation claus- rants from charging cheaper prices on es (MFN) food delivered via other sales routes such as ordering food on the phone or other delivery apps. Korea 2021 Abuse of KFTC found that Google banned smart- KFTC demanded the tech gi- dominance phone manufacturers from releasing de- ant to ban its anti-compet- vices that run on rival OS as a prerequisite itive practice of preventing Conditional for licensing Play Store and early access to smartphone makers from licensing Android source code, blocking the market using operating systems entry of fork OS which are rivals to Android. developed by rivals and ordered it to take corrective steps. The KFTC imposed a USD 176.6 million fine Korea 2021 Abuse of Naver Corp., the nation’s biggest search Cease practice and imposed dominance engine, manipulated search algorithms in a fine of USD 26.7 billion favor of the company’s online shopping -won (USD 20.5 million). Differential site. treatment Korea 2021 Anticompet- Five accommodation platforms were ac- During investigation, these itive agree- cused of abuse of dominance by imposing platforms voluntarily ment most-favored nation clauses (MFN). removed MFN clauses or replaced wide MFN with Most-favored narrow MFN nation claus- es (MFN) 107 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges Korea 2021 Merger KFTC unconditionally approved the pro- N/A posed joint venture between Uber and T Map Mobility, the mobility division un- der SK Telecom. The JV combined T Map Mobility’s network of drivers and mapping technology with Uber’s ride-hailing tech- nology expertise. KFTC determined the JV could increase competitive pressure on the market’s leader Kakao, which holds 80% market share. Viet Nam 2019 Merger Viet Nam’s Competition Council found that N/A Grab did not need to notify its acquisition of Uber’s southeast Asian business. Even though the Competition Authority con- cluded that the companies should have notified their deal which would give them more than 50% of the market, and that it violated competition law, the Competition Council admitted that taxis compete with ride-hailing apps which would make the combined MS much lower and the deal not notifiable. The Council also determined that the deal did not involve equity, Grab did not have voting rights in Uber Viet Nam after the transaction and that the Uber app would continue to be operated by Uber. In other words, they determined that the deal did not take ownership of the exiting company. Malaysia 2019 Abuse of MyCC found that Grab had abused its Cease practice and a USD Dominance dominant position by imposing restrictive 20.5 million dollar fine clauses on its drivers; preventing them Exclusivity from promoting and providing advertis- Agreements ing services for the latter’s competitors. Grab prevented drivers from promoting Grab’s current and potential competitors on e-hailing platforms and in transit media advertising. Grab appealed the case, but Malaysia’s High Court dismissed Grab’s request. Malaysia 2021 Abuse of After a thorough investigation and due Dagang Net needs to cease Dominance process, MyCC issued a decision that and to refrain in the future, Dagang Net had infringed Section 10(1) of from engaging in exclusive Exclusivity the Competition Act 2010 by engaging in dealing. Agreements exclusive dealing through the imposition of exclusivity clauses on software providers of the NSW from October 2015 to November 2017. 108 Digital Conglomerates in East Asia: Navigating Competition Policy Challenges 2021 Abuse of Dagang was accused of abusing its dom- N/A Dominance inance for refusing to supply electronic mailboxes to the end users of the System Refusal to Maklumat Kastam (Customs Information supply System). The authority found that Dagang Net did not significantly prevent, restrict or distort competition. No refusal to supply infringement was found. The 2018 Merger The PCC subjected Grab’s acquisition of 1. Grab shall not introduce Philippines Uber to service quality and pricing stan- any policy that will result in dards in clearing the transaction. These drivers and operators being conditions for clearance were part of the exclusive to Grab. voluntary commitments signed by Grab to address the competition concerns raised 2. 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