Classroom Companion: Business

 
Chapter 13 · Digital Monopolies and Oligopolies

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© The Author(s), under exclusive license to Springer Nature 
Switzerland AG 2021
H. Øverby, J. A. Audestad, Introduction to Digital Economics, 
Classroom Companion: Business,
https://doi.org/10.1007/978-3-030-78237-5_14
207
Mergers 
and Acquisitions
Contents
14.1 
 Definitions – 208
14.2 
 Motivations for M&A – 210
14.3 
 Types of Integration – 212
14.4 
 Conclusions – 214
 References – 215
14

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208
14
 
n Learning Objectives
After completing this chapter, you should be able to:
5
Explain the difference between merger, hostile acquisition, reverse takeover, and 
backflip.
5
Understand the concepts of horizontal integration, vertical backward integra-
tion, and vertical forward acquisition.
5
Explain how mergers and acquisitions have shaped digital markets.
14.1 
 Definitions
7
Chapter 
13
 argued that several companies in the digital economy progress 
towards de facto monopolies over time. The main reason for this is strong positive 
network effects caused by positive market feedback. Large companies have an 
advantage by just being large and tend to capture even more consumers—both new 
consumers joining the market and consumers from its competitors. The result is an 
increased market size for the largest company in the market and reduced market 
size for the rest. This phenomenon is called organic growth (Locket et al., 
2011
). 
.
Figure 
14.1
exemplifies this for Facebook, in which a growth from 360 million 
MAU (monthly active users) in 2009 to 608 million MAU in 2010 due to users 
churning from competing social media and new users that have not used a social 
media previously join the service. In this period (2009–2010), Facebook performed 
few acquisitions (only one in 2009 and ten in 2010), and most of them were of 
technical nature. Hence, the growth in users came only from either churning users 
or new users. Note that 
.
Fig. 
14.1
presents the net increase in users—in the period 
some users may have left Facebook for competing social media and vice versa. 
However, the net flow of MAU from 2009 to 2010 was positive. Also note that there 
are no or few detailed data whether the increase in Facebook users was from churn-
ing or new users—only the net increase is reported in official statistics. Most prob-
ably, the complete picture is complex and involves churning across every social 
media at the time, new users joining, and existing users quitting social media alto-
gether.
Churning users
New users
360 million MAU
Facebook (2010)
608 million MAU
Facebook (2009)