TikTok, Trump, and Network Exchange
On September 14th, 2020, it was officially announced that Oracle and Walmart won the bid for TikTok in the US. Several other companies were hoping to win the bid for TikTok, including Microsoft. TikTok is a widespread social media platform featuring short videos. The nature of these videos include music trends or skits and are popular among young people. Although the company started as Musical.ly, Chinese conglomerate ByteDance purchased the company in 2017 and converted its audience into TikTok.
Because its parent company, ByteDance, is located in China, the Trump administration was heavily concerned with whether the Chinese government was using Americans’ information through TikTok since the Chinese government has widespread access to the information of private businesses.
There were many elements of auctions and network exchange at play here. To start, let’s take a closer look at three major bidders: Microsoft, Oracle, and Walmart. Satya Nadella, the CEO of Microsoft offered early bids but eventually lost out to Oracle. Speculation about why this was the case despite Microsoft being a company with more capital revolves around the fact that Larry Ellison, the CEO of Oracle is an avid supporter of the Trump administration. This played out similar to a single item, first price auction. Oracle and Walmart reportedly agreed to bid around a $60 Billion dollar evaluation. Now, at the end of September, the company is valued at $75 Billion, the largest privately held company in the world.
Oracle and Walmart bid lower than their value of TikTok, the dominant strategy in a first price auction. In addition, there are elements of network exchange. There is essentially a three node path here with Oracle, TikTok, and Microsoft. Oracle and Microsoft each have an edge connected to TikTok but none to the other. In a situation like this, the typical surplus benefit can be distributed to the middle node and one of its edges, with the other node receiving no surplus. In this case, due to the external pressure from the Trump administration, TikTok was able to receive the vast majority of the surplus with Oracle receiving some, and Microsoft not being part of the exchange.
Sources:
https://www.wsj.com/articles/microsoft-drops-out-of-bidding-for-tiktoks-u-s-operations-11600039821