CALL FOR PAPERS

Intertic Conference on Competition Policy and Property Rights

University of Milan, Bicocca, September 15-16, 2009,

with the III STACKELBERG LECTURE by John VICKERS (Oxford)

 

Question Marks on the Oracle-Sun Merger

On April 20, 2009, Oracle announced the intention to buy Sun Microsystems, which had been for a while under negotiations with IBM, a main competitor of Oracle. As it always happens in front of mergers between such large corporations, an antitrust evaluation is necessary to verify whether the deal can have anti-competitive effects and ultimately hurt consumers. In this case the issue is particularly complex for the American and European antitrust authorities.

Apparently, a merger between a company mainly focused on software with another company largely focused on hardware should not raise relevant antitrust concerns. However, a closer look at the interests of the two companies in the field of software can provide a different impression, especially if we recall that in a number of occasions Oracle has been engaged in acquisitions aimed at substantial business change that led to higher prices (for instance in the case of the BEA Web Logic products) or discontinued production (for instance in the recent case of the Virtual Iron products).

If the merger goes through Oracle will become the dominant company as a single supplier of enterprise hardware and software. In this unique status, Oracle may try to eliminate competition, reduce consumers’ choice and increase prices. This is a possible way to harm final consumers that should be taken in consideration by the antitrust authorities, but there is a more dangerous threat that this acquisition could hide.

After the merger, Oracle will control Sun’s technologies, including the celebrated Java technology, which is a widely used standard for application-hosting used on over 6 billion devices worldwide (way more than Windows), including mobile phones and server platforms. At that point competition for Java-based application servers and for the wider Java middleware market (accounting for about $ 5 billion) will be limited to two major companies, Oracle and IBM, without any strong competitive pressure. These are the typical situations in which a merger softens competition and allows the duopolists to increase margins and profits while hurting the final consumers.

Moreover, one may wonder whether Oracle will use Sun’s technologies for its own purposes only and will pursue anti-competitive strategies toward other firms. In particular Oracle may have incentives to restrict licensing for its competitors, for instance the European SAP (a leading competitor of Oracle in business software) whose business is delivered on Sun’ server systems, or to increase prices for the other firms, for instance, the many European telecommunications technology firms as Nokia, Symbian, Alcatel, Ericsson or Siemens, all licensing Java.

Finally, while Oracle is focused on commercial software, most of the software by Sun is open source, as in the case of Solaris, the most popular operating system derived from enterprise Unix, and MySQL, the most popular database for websites. One may wonder what will be the destiny of these technologies and of their current users, and what will be the impact on the large European open source sector.

Of course, all of these critical points can be the subject of antitrust concern only if they lead to consequences that hurt current or future consumers, and not if they end up hurting the competitors per se. However, a closer look at this merger, at its implications for the future strategies of Oracle and at the entry conditions in its market, is going to be useful, especially to make sure that the role of Java as an open platform will be preserved after this acquisition.

 

 

Send us your feedback and comments about this article