Featured Article – Antitrust and Big-Tech

With U.S. Congress members grilling the bosses of the big tech companies this week with a view to deciding if their companies have become too big and powerful, in this article we take a look at the Antitrust laws and issues.

Antitrust Laws

In the U.S., home of big tech companies Facebook, Apple, Google and Amazon, the bosses of which are about to face an antitrust grilling, there are three core federal antitrust laws. The objectives of the laws are to help consumers by protecting the process of competition, making sure there are strong enough incentives for businesses to operate efficiently, to keep prices down, and keep maintain quality of goods and services. 

When Microsoft faced Congress back in 1998 over an antitrust row about Microsoft allegedly forcing PC manufacturers to make Internet Explorer the default browser on their computers, the Sherman Act of 1890 was the main Act used in the against Microsoft.  This act concerns monopolies and prohibits “unreasonable” restraints of trade.

The other two core federal antitrust laws are The Federal Trade Commission Act which bans “unfair methods of competition” and “unfair or deceptive acts or practices”, and the Clayton Act which relates to some practices that the Sherman Act does not clearly prohibit e.g. mergers.

Before Congress

This week, Mark Zuckerberg of Facebook, Sundar Pichai of Google, Tim Cook of Apple and Jeff Bezos of Amazon are all appearing before members of the U.S. Congress to face questions related to the antitrust laws and to help the U.S. government decide whether these companies have become too big and powerful. 

Complicated Argument

The arguments in relation to Google and Facebook particularly (both of which offer services for free, funded by advertising), are likely to be complicated by their ‘free’ business-model.

Facebook, for example, offers Instagram, WhatsApp, and its classic Facebook platform free to consumers and Google offers its search engine, email, YouTube, and other services for free. Apple also offers free apps for download.  The offering of these free services could, therefore, make it difficult for Congress to use an antitrust law against them that is based on consumer pricing.

Issues

Some of the issues the Congress legislators may mention have also been echoed in the UK. These issues include:

– Big tech companies thrived during the pandemic which may indicate that they could be “too big to fail” and that this could indicate that they have become too powerful and this could represent an unfair situation for competitors.

– The tech giants, like Amazon and Google, own the Internet utilities and, therefore, could be acting unfairly e.g. Amazon promoting its own products over others on Amazon marketplace.

– That even though some key services are offered for free, the tech giants may be hurting consumers in a less direct way by making it difficult for other competitors to compete with ‘free’ and thereby damaging the wider economy.

– The issue of the role that powerful platforms such as Facebook have played (and could play) in the influencing of votes in elections due to content posted and shared on those platforms.  Significantly, there is a U.S. presidential election later this year.

– Google and Facebook’s market positions may mean that they have had a detrimental impact on newspapers and their circulation.

– Apple and Google own iOS and Android and, therefore, could be said to control the app market, making it difficult for app makers to go anywhere else for sales and distribution.

– Companies like Google and Facebook may be too powerful in the advertising market.  This is a point that has been made in the UK too by the Competition and Markets Authority (CMA) which has noted that Google has more than 90 per cent of the £7.3bn search advertising market and Facebook has more than half of the £5.5bn UK online display advertising market.

Counter Arguments

Obviously, the heads of tech giants Facebook, Google, Apple, and Amazon have their own counter-arguments and points.  These may include:

– In providing free services, they also face competition from other popular free services such as TikTok, and their free services e.g. Facebook provides a great way for people to connect and share and for all kinds of businesses to promote themselves.

– Advertising e.g. via Google and Facebook provides a fast and effective way to help businesses compete and consumers to see and buy the products and services they want and need.

– Facebook may be likely to say that it has grown from nothing, in a fair way, and that U.S. laws also promote the kind of competition and innovation that has helped it and other U.S. companies to grow.

– Amazon, for example, has said that it welcomes scrutiny of all large institutions, including itself, government agencies and non-profits.

– Breaking up or over-regulating the big U.S. tech companies could hand more power to Chinese tech companies (e.g. Huawei).

Microsoft

Microsoft’s Bill Gates is reported to have said that he wishes the four tech giant leaders well before their grilling by Congress.  Microsoft provides an example of what could happen when the leaders face Congress members as back in 1998,  Bill Gates faced his own four-hour hearing in the hot seat as he and some peers (Sun Microsystems Chairman Scott McNealy, Michael Dell, Netscape’s president Jim Barksdale and more) faced some serious questions from Congress over antitrust laws.  In Microsoft’s case, the judge ruled that Microsoft should be broken up, but this decision was reversed on appeal and following a settlement reached by Microsoft and the court.  The hearing took its toll in other ways though, as it led to the demise of Netscape and to Bill Gates deciding to retire in 2000. 

What Could Happen?

The ultimate fear among the tech giants is that the same sort of ruling as the initial one reached against Microsoft could happen again or that it could lead to over-regulation.

There are also fears among supporters of scrutinising tech companies that questioning the tech company bosses all together and not individually could mean that really difficult questions could be deflected and skilfully side-stepped and that some Congress members may simply use the occasion to ‘grandstand’.

In The UK

In the UK, the CMA is calling for the introduction of a new ‘Digital markets Unit’ that could be given the powers to enforce a code of conduct for big tech firms and even the powers to break them up.

Looking Ahead

It is difficult to deny that big tech companies like Facebook, Amazon, Apple, and Google are huge and powerful in markets across the world. The arguments relating to antitrust laws, however, are more complicated than they may first appear and there is also a political dimension in this debate as well as one relating to fair competition and how well consumers are served.  This argument may go on for quite some time yet, but the tech company bosses are likely to find the hearing in the U.S. an uncomfortable step in the way forward.