Is Big Tech too big? – a look at competition
“Trust is a serious problem, we have to get to a new level of transparency – only through radical transparency will we get to radical new levels of trust.” - Marc R. Benioff, CEO of SalesForce
Monopolisation and competition
Monopolisation occurs when one entity dominates a particular market to a point whereby it can exclude competitors. Whilst some defend monopolisation in certain contexts, citing economies of scale, others vocalise the associated dangers and the preclusion of free market economics. A free market is, by definition, a market in which prices of goods and services are derived from unrestricted competition. When a market ceases to be free, exploitative practices become an increasingly viable option for market dominators.
Competition law, known as antitrust law in the USA, is concerned with ensuring market competition through the regulation of anti-competitive practices. The importance of regulation stems from the notion that a competitive market will be more innovative and less predatory than a dominated market.
The modern age of competition law is usually said to have begun in the USA, with the Sherman Act in 1890 (although technically Canada passed a statute the year before this). This piece of legislation set the framework for the protection of consumers against monopolisation.
What can competition law prevent?
In the age of globalisation, with the overwhelming majority of large companies operating in countless jurisdictions, the implementation of competition law can be complex. Protection of global markets is a matter of international importance, and individual jurisdictions all have a part to play.
Specific regulation varies from nation to nation and from bloc to bloc. However, there are common means through which competition law is enforced:
Prevention of price-fixing This involves companies colluding to inflate prices to levels that don't reflect natural market forces. This process is often the result of companies wanting to avoid price wars.
Regulating horizontal mergers Horizontal mergers are a specific kind of merger whereby a company acquires another company operating in the same industry. Imagine company X has a market share of 29% and wants to acquire Y, which has a market share of 11%. The resultant market share is 40%, so not monopolistic by itself. However, if company Z has a market share of 51%, then the newly formed XY could collude with Z and fix prices, given their combined market share of 91%.
Exclusive supply agreements If a buyer has the sole power to purchase goods from a supplier, then the buyer will be able to suppress competition through lower purchase costs.
Potential competition mergers These involve larger companies acquiring nascent companies with the potential to compete.
Tying the sales of products Companies may try and use their dominant position in one market to improve market standing in another (see United States vs Microsoft Corp.)
Competition law through time
"Growth and comfort do not coexist." - Ginni Rometty, ex-CEO of IBM
In 1911, Standard Oil Co. was charged with anti-competitive practice and monopolisation of the petroleum industry. As a result of this, Rockefeller’s behemoth was broken up into 34 subsidiary companies. At the time, Standard Oil had an estimated value of just over $1 trillion, with a market share of 90%. As of February 2021, four of ‘The Big Five’ have valuations greater than that, with Apple being valued at over $2 trillion. Google’s search engine market share is approximately 90% in many regions, Apple has over a 50% market share in UK mobile operating systems, and Amazon’s e-commerce market share in the US has grown by more than 15% in the past five years.
2020 was the first time since the 1960s that the top five stocks in terms of market capitalisation on the S&P 500 listing (Apple, Amazon, Microsoft, Facebook, and Alphabet, known collectively as FAAMG) were from the same sector. The FAAMG stocks alone, even excluding the likes of Tesla and Netflix, now constitute over 15% of the S&P 500’s earnings. By 2023 this is predicted to rise to over 22%. That is to say, 1% of the companies in the S&P 500 will make up over a fifth of its total earnings…
After a strong start to 2021, the FAAMG stocks averaged a 52% increase in market capitalisation year-on-year, Amazon leading this group with a 75% soar. In light of these numbers, it is not surprising that both EU and US regulators are ramping up competition inquiries. Despite these numbers, it isn’t all plain-sailing in the world of tech. IBM, which was at the centre of the antitrust scene in the 1970s/80s, is a leading example of how a company in a seemingly permanent market-dominant position can decline. The fall of IBM is believed to be, at least in part, due to antitrust action. The distracting nature of dealing with legal battles can be deleterious, especially in an industry as fast-moving and innovative as the tech industry.
The meteoric rise of today’s Big Tech has also not been without competition law involvement. Between 1998 and 2001, during the dot-com bubble, Microsoft was embroiled in ongoing antitrust charges. In 2015, Apple was forced to pay $450 million after being found guilty of colluding with publishers to fix eBook prices.
A case study: United States v. Microsoft Corp.
In 1998, Microsoft had a market share of 87%, and it was increasing year on year. For comparison, it now has an OS market share of 35%.
Microsoft faced accusations of engaging in monopolistic behaviour, making the use of browsers other than Microsoft’s own Internet Explorer difficult on its OS, at the expense of competitors such as Netscape.
There was fear that the early dominance of Microsoft in the personal computer industry could stifle future growth.
It was ruled that Microsoft was operating in violation of articles within the Sherman Act.
Microsoft was mandated to split into two companies: one arm that would deal with the OS, and one arm that would deal with software.
The ruling was appealed and overturned. Instead, there would be a settlement that included the sharing of application programming interfaces.
There was no limit placed on linking Windows OS with software applications.
What is happening with Big Tech right now?
Facebook In December, the FTC sued Facebook, accusing the company of monopolisation via the purchases of Instagram and WhatsApp. In 2012 and 2014, the FTC did not prevent these purchases, but it now believes this social media triumvirate is too powerful, and a serious threat to competition.
In February 2021, Facebook blocked its Australian users from accessing news content in response to The Australian Government’s media bargaining bill. The bill, which was passed through the House of Representatives, will mandate the likes of Facebook and Google to pay news providers for use of content.
Apple Antitrust action was brought against Apple by Epic Games in response to Apple taking a 30% cut on App Store sales. In February 2021, the UK Competition Appeal Tribunal rejected the lawsuit.
The US DOJ is continuing an investigation regarding the ‘Sign in with Apple’ button. Devised to allow quick integration of Apple ID to apps, the investigation aims to determine if this feature makes it difficult for users to transfer accounts to other platforms.
Amazon Amazon is facing an inquiry from EU regulators regarding its non-public third-party data usage. The investigation aims to elucidate whether this usage is cutting out smaller players in the industry.
Amazon Web Services is also under investigation for the monopolisation of cloud computing.
Google (owned by Alphabet) As with Facebook, Google is currently being targeted by the Australian government’s media bill. Google has threatened to pull operations out of Australia entirely. The events unfolding in Australia will be a cause of concern for Google for two major reasons. Firstly, Australia is seen as a good beta market, given that it closely parallels the US market. Secondly, the precedent that is being set by a major democracy opens the door for other nations to follow suit, meaning Google could lose its current foothold.
Microsoft Microsoft has welcomed the Australian media bill, suggesting the EU follow suit and angling for use of its own web browser, Bing.
What does this mean for the future?
There are two sides to the ongoing antitrust debate. On the one hand, Big Tech argues that only as a result of occupying such dominant positions can they be so innovative. This innovation can be seen through subsidiaries such as Google’s DeepMind, a leader in AI, and Amazon’s Blue Origin, which Jeff Bezos is hoping will rival SpaceX. On the other hand, regulators are wary of the seemingly omnipotent oligopoly and potential suffocation of future innovation.
In the age of data colonialism, with watershed events such as the Cambridge Analytica scandal, there is a growing sentiment against the power Big Tech yields. Perhaps acting as a bellwether, IBM has made the proactive decision to split in two, diversifying into cloud computing and artificial intelligence in addition to the traditional IT infrastructure. In the next decade, prepare for round after round of antitrust inquiries. As is always the case with the tech sector, significant landscape shifts are a given.
Forbes.com. 2021. [online] Available at: <https://www.forbes.com/advisor/investing/facebook-antitrust-lawsuit/>
Federal Trade Commission. 2020. FTC Sues Facebook for Illegal Monopolization. [online] Available at: <https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization>
Espósito, F. and Espósito, F., 2021. US DOJ investigating antitrust complaints regarding the ‘Sign in with Apple’ button - 9to5Mac. [online] 9to5Mac. Available at: <https://9to5mac.com/2021/02/23/us-doj-investigating-antitrust-complaints-regarding-the-sign-in-with-apple-button/>
"Competitive Effects". Federal Trade Commission, 2021, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers/competitive-effects.