In recent months, there have been several complaints alleging tech monopolies practices against some of the largest global technology companies, specifically those formerly known as GAFA (Google, Amazon, Facebook, and Apple). The precedent for antitrust legislation is the Sherman Antitrust Act, which went into effect in the United States in 1890. The purpose of these laws is to preserve market competition to benefit consumers by ensuring that companies have strong incentives to act efficiently, keep prices low, and improve quality.
An early and notable instance of the application of this legislation involved the Standard Oil Company. Established in 1870 by John D. Rockefeller and his associates, the company later formed the Standard Oil Trust in 1882. Through this trust, it succeeded in consolidating control over numerous firms, ultimately dominating nearly 90% of the nation’s oil production.This was the era of Cornelius Vanderbilt (Railroads) and J.P. Morgan (Banking and Steel), who became famous for their market monopolization tactics.
Countermeasure Solutions to Encourage Innovation
Initially, the strategy used was to form conglomerates of companies in the same sector and reduce prices until competitors continued to go bankrupt, then acquire those companies and their affiliates. Under the Sherman Act, the U.S. Supreme Court ordered the forced disintegration of Standard Oil into 34 companies in 1911. Today, the descendants of that empire include companies such as Exxon Mobil and Chevron, following numerous acquisitions and mergers.
Another example was the 1982 order to break up AT&T (American Telephone & Telegraph) because a monopoly was beginning to emerge in the U.S. communications industry. More recently, and within the technology sector, the U.S. government filed a lawsuit against Microsoft in 2001, accusing the company of attempting to monopolize the internet browser market by leveraging its dominant position in personal computer operating systems. In this case, however, the company reached an out-of-court settlement.
The Real Cost of Monopolization
The US Department of Justice that established some compensation but did not require Microsoft to change its code or prevent it from linking other software to Windows in the future. The pandemic has accelerated the rate at which companies like Amazon, Facebook, Apple, and Google have lost their economic value. The total market capitalization of these companies has already surpassed the GDP of Japan, the world’s third-largest economy.
This colossal economic power allows them to buy out any potential competitor. If this is denied, they sometimes resort to discriminatory practices or create a similar product and use all their resources to displace them from the market. Observers attribute the erosion of the entrepreneurial spirit in emerging businesses to their actions. Some of them are beginning to venture into other areas, such as the automotive, banking, and energy industries, which is worrying regulators.
The Risks of Monopolized Economies: Why Innovation Suffers
This concern is echoed by key figures in the financial sector. For instance, the Deputy Governor of the Bank of Spain, Margarita Delgado, has advocated for the implementation of regulatory firewalls for large technology companies entering the financial domain, citing the systemic risks associated with their lack of transparency and the potential threats to financial stability, market competition, and consumer protection. Similarly, Yves Mersch, a member of the European Central Bank’s Executive Board, expressed comparable apprehensions in response to Facebook’s introduction of its cryptocurrency, Libra, emphasizing that unlike central banks, corporate conglomerates are primarily accountable to their shareholders rather than the broader public.
Google (a subsidiary of Alphabet), the company founded in 1998 and based in Mountain View (Silicon Valley, California), controls 80% of internet searches in the US. In its case, it is accused of monopolizing online search engines, advertising based on that information, and giving preference to its set of applications and services over those of its competitors. They are both judge and jury: they own the advertising and the media through which they operate, such as operating systems (Android) and browsers. What this means is that other companies have no genuine chance of competing.
Conclusion
Authorities have already sanctioned Facebook several times for privacy-related issues and in the Cambridge Analytica case. A recent lawsuit filed by prosecutors in 48 of the 50 US states essentially demanded that Apple divest itself of Instagram and WhatsApp, two companies it acquired in recent years, consolidating its market dominance. Critics accuse Apple of engaging in monopolistic practices because it allows applications to be installed on its devices only through the App Store, its sole official channel.
Last December, the European Commission presented the Digital Services Act (DSA) and the Digital Markets Act (DMA), which aim to address these challenges. These regulations aim to change the business practices of these companies in Europe, subject to fines of between 6% and 10% of their global turnover. They also consider forcing the sale or spin-off of assets as a last resort if the recommendations are repeatedly violated.
