Roosevelt Institute | Cornell University

A Discussion on the Current State of AntitrustWhat is Antitrust?

By Garry BlumPublished December 5, 2019

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With antitrust making big headlines: What is antitrust? How has antitrust changed overtime? Why reconsidering our position on antitrust is more important than ever?

Antitrust’s Resurgence

Antitrust made headlines when the European Union slapped Google with several multi-billion Euro fines – including a record breaking €4.34 billion. These fines, in conjunction with other EU competition cases brought against Facebook and Apple, have altered perceptions of antitrust, not only in Europe, but in the US as well. American big tech had been under increased scrutiny given concerns surrounding the 2016 Presidential Election. Facebook, Apple, and Google are all currently facing probes by the FTC. These inquiries have spurred questions across American industry: Are firms becoming too large? Is there enough competition in the market? Should the government be approving major mergers? The government could be undergoing a shift in antitrust regulation it has not seen in decades. To understand the possible ramifications, it is important to understand the landscape of antitrust in the US.

The State of Antitrust in the US

Competition in the US is defined by three legislative acts: The Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These laws define antitrust and are enforced by the executive branch. In the early 1900’s, antitrust had been aggressive. This era included the infamous breakup of US Standard Oil, which became today’s Mobile, Exxon, Chevron, et cetera. Over the last century, though, the courts have slowly refined and tweaked these executive powers, the result of which we have today. Due to changes in the political landscape, there has been extensive deregulation of antitrust provisions. The litmus test governing antitrust decisions is now simply whether a company, product, or merger harms consumers. Traditionally, this meant protecting consumers from dominant companies who charged high prices. However, cases brought against Microsoft and IBM at the end 20th century showed that damages to competition could cause harm to consumers as well – this is the pretext of antitrust suits in Europe today.

The reworked standards are significant against the backdrop of today’s industry landscape. This is most prevalent in the big tech industry: search, social media, and e-commerce are all dominated by a few incredibly large firms. Amazon, for example, provides an incredible and cheap service which has revolutionized its industry. However, Amazon alone owns 49% of the e-commerce market with potential to grow. What if you, as a consumer, wanted to shop somewhere else? Your options are limited. We see that many companies assumed to be distinct fall under the umbrella of a larger conglomerate, ultimately leading to market domination by only a handful of large firms. This consolidation has been the trend of many industries over the last two decades – making some large firms unavoidable.

 

Analysis

What does a changing regulatory landscape mean for the economy today? We know that companies have to be more careful. Being too dominant leads to a significant amount of costly legal trouble, the results of which have already been seen in Europe (e.g. Apple’s  €4.34 billion fine) . This is a necessary protection for consumers because even though companies like Amazon and Google provide great products and services, slowing them down gives competition a chance. Competition among firms is what we rely on to provide us with the best product. Looking at cell phone manufacturers, for example, competition is ripe and promotes fast-paced, impressive change. Competition is how we receive a new and improved iPhone every fall with rolling updates to our operating systems. The pressure among competing firms is the reason antitrust is important.This type of fierce competition, the fundamental driver of our economy, needs to be protected by the government. When we as consumers are stripped of choices, we cannot demand better – firms become complacent. Although, a healthy balance should still be maintained because too much regulation can stifle innovation. Overall, governments have become lax with their regulations where it is better for us, the consumer, to have these protections. A few firms should not dominate the market, but many firms should be fighting for our dollars. It is the role of government to set this landscape.