The Danger of "Killer Acquisitions" in Digital Markets

Isabella Machado Jirón shares with us an article about "Killer Acquisitions", a practice that can have significant repercussions on both the economy and competition of a country. 

The term "Killer Acquisitions" originated from a study focused on the pharmaceutical sector in the United States, where it was thoroughly analyzed in research related to economics and competition law. The study identified that large, established companies were acquiring startups or emerging businesses solely to discontinue their innovation projects and eliminate future competition. Although this phenomenon originated in the pharmaceutical sector, in markets such as the European market, the term has primarily been associated with digital markets. 

According to the Organization for Economic Co-operation and Development (OECD), the primary effect of a Killer Acquisition is the disruption of product development, raising horizontal concerns. This occurs even when, at first glance, the acquired startup appears to be developing a product that complements or is unrelated to the established company's products. Concern lies in the fact that the acquired product could eventually become direct competition for already established firms. Thus, being able to control the product without necessarily discarding it removes the competitive threat it might pose. 

Killer Acquisitions can severely distort competition in Nicaraguan markets. By acquiring high-potential startups or emerging companies in the digital market, dominant companies can maintain or strengthen their dominant position, preventing the entry of new competitors and limiting available options for consumers. This could lead to price increases, a reduction in product and service quality, and less market innovation due to the lack of competitive pressure. 

The phenomenon of Killer Acquisitions has not been extensively researched in contexts like that of Nicaragua, so this document seeks to reflect on the reasons behind these acquisitions in general and the potential impact on competition. 

In Nicaragua, Law No. 601, "Law for the Promotion of Competition" ("Law No. 601"), and Executive Decree No. 79-2006 "Regulation to Law No. 601, Law for the Promotion of Competition" ("Regulation"), whose consolidated text was published in The Official Gazette No. 137, on July 26, 2022, are responsible for regulating substantive aspects of economic competition, seeking mechanisms to prevent and prohibit anticompetitive practices and unfair competition conduct. The Attorney General’s Office ("PGR") currently plays a crucial role in the implementation and regulation of Law No. 601 in the country. On April 25, 2024, Law No. 1202, "Law for the Creation of the National Office for the Defense of Free Competition and Alternative Dispute Resolution," was approved, and it was published in The Official Gazette No. 75, on April 29, 2025. This new legislation establishes the creation of the National Office for the Defense of Free Competition and Alternative Dispute Resolution. 

Law No. 601 provides a framework for the supervision of economic concentration and protection against conduct that may harm competition and consumer welfare. Specifically, Articles 26 to 28 of Law No. 601 establish that economic concentrations may be reviewed and, if necessary, prohibited if it is determined that they could substantially affect competition, preventing or limiting its development. 

Nicaragua, like any emerging economy, needs to foster an environment conducive to innovation and business development. In this sense, Killer Acquisitions can discourage innovation by dissuading entrepreneurs and startups from seeking growth and expansion, knowing they may become targets for premature acquisition by larger competitors. This could limit the potential for economic development and the country's ability for more entrepreneurs to compete globally in key sectors. 

One of the main challenges in relation to this issue is that early stages of development of emerging businesses often do not reach the thresholds established in Article 25 of Law No. 601. This article requires the notification of economic concentrations when, as a result of a concentration, a market share equal to or greater than 25% of the Relevant Market is acquired or increased defined as "the line of trade in a particular geographical area, covering all products or services that are reasonably substitutable for each other, as well as all immediate competitors that a wholesaler, intermediary, or consumer could turn to in the short term." Therefore, these thresholds can pose a challenge in easily detecting potential competitive threats. These types of acquisitions, because they do not meet the notification requirements, have tended to go unnoticed by competition authorities, which could lead to situations that undermine innovation and the development of small businesses. 

In Nicaragua, there is a mechanism to consult with the competition authority whether concentrations meet the established thresholds to enter the formal authorization process. This mechanism is the "Certificate of No Objection," which involves an analysis of the concentration operation to determine whether it falls within the thresholds regulated by Law No. 601 and its Regulation or not. 

So, what is the most important challenge represented by Killer Acquisitions? They pose a significant challenge for Nicaragua in terms of economic competition, innovation, and business development. To mitigate these risks, competition should be further strengthened and promoted, ensuring that acquisitions do not unduly limit opportunities for new businesses and entrepreneurs. Only in this way a healthy and dynamic economic environment can be guaranteed that benefits all sectors of Nicaragua. 

Market diversification is crucial for economic resilience in general. Killer Acquisitions can concentrate economic power into the hands of a few, creating an environment where the failure or weakness of a large company could have severe repercussions throughout the economy. To address these risks, it is essential for Nicaragua to have a robust and effective regulatory framework for competition. Authorities must be equipped with the proper tools to identify and assess potential cases of Killer Acquisitions and to impose measures when necessary. 

In addition to regulation, awareness of the risks of these acquisitions among entrepreneurs, investors, and the general public in Nicaragua must be raised. This could involve educational campaigns and the promotion of ethical business practices that encourage long-term innovation and competition knowledge, focusing on the new generations in the developing digital markets. 

It is important to strengthen international and regional ties to identify patterns of anticompetitive behavior, share the best regulatory practices, and ultimately ensure that markets remain competitive and open. This collaborative approach not only protects market interests but also provides innovative new entrepreneurs with the confidence to operate in a more transparent and fairer regulatory environment. 

Throughout history, law has evolved to promote free and healthy competition, as well as the development of small businesses, to foster an economy where consumers can access a wide variety of products and services. In this context, economic concentrations have shown that, in some situations, the absorption of one company by another can spur the growth and development of the former, enabling it to achieve success that would otherwise have been difficult to attain without the necessary investment and resources. 

The following are two cases of acquisitions that allow us to appreciate how economic concentration can generate positive or negative effects, depending on their objectives and consequences. The cases of Microsoft with Hotmail and Facebook with Instagram and WhatsApp illustrate two different approaches to acquisitions, offering a key perspective on regulatory and commercial implications in the digital environment. 

In 1997, Microsoft acquired Hotmail, which represented a significant advancement for the development of the app, which was initially limited to a single territory and language. As a result of the purchase, Hotmail was able to expand its reach globally, overcoming language barriers and becoming a globally accessible service. This acquisition not only promoted the growth of the service but also demonstrated how economic concentration can benefit both companies and consumers by enhancing global competitiveness. However, it is important to note that not all acquisitions have this positive effect, as some may limit competition. Therefore, regulatory authorities must carefully assess their impact to protect consumer welfare. 

Meta Platforms Inc. (formerly known as Facebook) responded to the emergence of new platforms such as Instagram and WhatsApp by acquiring them in 2012 and 2014, respectively. Instagram was known for its focus on visual content, while WhatsApp offered a service centered on instant messaging. By integrating these applications into its ecosystem, Meta significantly expanded its presence in the social media and digital communication sectors. 

These acquisitions have been viewed as part of a common strategy in dynamic tech markets, where companies seek to strengthen their position and broaden their range of services through the integration of complementary platforms. However, such operations have also drawn the attention of regulatory authorities and competition experts, who assess their potential impact on market diversity, innovation, and consumer welfare. This example illustrates how certain business decisions can shape the structure of the digital market and have prompted increased focus in the field of competition law, particularly regarding balancing business growth and the preservation of a competitive environment. 

In a context like Nicaragua, where access to technology and innovative services remains a challenge for a large part of the population, advancements in these areas are crucial not only to enhance the country's competitiveness but also to promote a more inclusive and equitable economic development. Encouraging acceptance and proper supervision of digital platforms is essential, as it ensures that these technologies are safe, efficient, and accessible to all sectors of society. This, in turn, facilitates the creation of a favorable environment for investment, entrepreneurship, and job creation, which is key to diversifying the economy and creating opportunities for sustainable growth. 

Therefore, these initiatives should not be viewed as mere point innovations or passing trends but as catalysts for a profound structural transformation in the Nicaraguan economy. If properly implemented, they could facilitate a more balanced and sustainable growth model with an inclusive focus that benefits all citizens, not just a few sectors. Moreover, this transformation would allow for greater integration of Nicaragua into the global economy, opening doors to new opportunities for collaboration and participation in international markets, thus strengthening the country’s position in the global digital economy. 

In this landscape, key sectors such as digital advertising, social networks, and e-commerce are experiencing increasing concentration of power and resources. Large digital platforms have begun to dominate these fields, generating a significant impact on both the economic structure and market competition dynamics in the country. However, this situation raises several challenges. First, it limits opportunities for new actors to enter the market, reducing the diversity of options available to consumers. On the other hand, it creates barriers that hinder innovation, as smaller companies lack the resources to compete fairly. Additionally, this concentration of power can have broader consequences on the market, such as the possibility that digital platforms manipulate or control the flow of information and services offered, thus affecting consumers' freedom of choice. While large platforms can drive efficiency and convenience, it is also crucial to find a balance that favors a competitive and dynamic environment where innovation can thrive, and consumers have access to diverse and quality alternatives. 

Law No. 601 is a key regulation for ensuring competition in the Nicaraguan market and for preventing monopolistic or anticompetitive practices; however, this law was enacted in a context where digital markets and the dynamics of technological acquisitions did not yet present the challenges we see today. 

For example, the growth of technology platforms and the acquisitions of tech startups require a more sophisticated approach that can identify the risks of monopolization from the purchase of emerging companies. Current laws may not be sufficiently specific or detailed to address these problems effectively. Therefore, authorities may consider a legislative update or even the creation of additional regulations that specifically cover technology, recommendation algorithms, social networks, online advertising, and other aspects affecting competition in digital markets.