In December 2020, the U.S. Federal Trade Commission (FTC) and 46 states sued Facebook, accusing the company of buying up competitors – chiefly WhatsApp and Instagram – to stop any major competition in the social media space. They took the action under an area of law called ‘antitrust law’ – and it’s worth understanding.
Quick definition: Also known as competition laws, the purpose of antitrust laws are to protect consumers from predatory business practices and encourage fair competition in the economy. The laws protect consumers from companies that have monopoly power in their market or companies that have merged to agree on prices together.
The consequences of these anti-competitive behaviours means that consumers can be subjected to extremely high prices, and lack of choice within a market as there is a monopoly in a specific industry by one or a small number of companies.
Why do regulators want competition?
When companies compete with each other, consumers get the best possible prices, quantity, and quality of goods and services. America’s Federal Trade Commission (FTC) also notes that competition encourages innovation – if your favourite shoe brand knows you have other options, they’ll keep designing and innovating to remain popular. If they were the only shoe brand in the market, they wouldn’t have any drive to innovate.
What does this have to do with big tech companies?
Antitrust law and the practices of U.S. tech giants is in the news this week after the U.S. House representatives unveiled the ‘American Choice and Innovation Online Act’ (it’s being nicknamed the ‘Ending Platform Monopolies Act’).
What tech practices are deemed ‘anti-competitive’?
Examples that have been discussed in Congress include Google’s prioritisation of their own products in Google searches, Apple’s policy on the mandatory use of Apple’s in-app purchase system to subscribe to music streaming, and Facebook’s purchase of Instagram.
Will the bills pass?
The bills have bipartisan support – and look likely to pass later this year. The multi-pronged approach means it will be easier for parts of the overall plan to pass sooner.
When asked about the bills (there’s actually five separate bills in the Act), Democrat Representative David Cicilline said “right now, unregulated tech monopolies have too much power over our economy. They are in a unique position to pick winners and losers, destroy small businesses, raise prices on consumers, and put folks out of work”.