Big Tech and Antitrust Law: Overview

Introduction

Over the course of the 2010s, a small number of large technology companies, such as Google, Amazon, Facebook, and Apple, fundamentally changed the American economy, and the services they provided altered many aspects of life in America. These companies, often colloquially called Big Tech, continued to dominate the technology market, and this has raised the question as to whether their dominance constitutes a monopoly that is a detriment to consumers.

The United States has a nominally free-market economy in which competition between private companies plays a dominant role in determining the costs of goods and services. Private competition is thought to lead to innovation and benefit consumers as companies compete to release better or more popular versions of a particular product or service. The free-market system works best when products or services are relatively similar among competitors, when new competitors can enter the market easily, and when consumers and providers alike are well informed about the industry’s products and/or services. These structural conditions—informed buyers and sellers, low “entry barriers,” comparable product offerings—can create a perfect market in which companies must price their products or services in a moderate range to compete, and such conditions maximize the benefit of innovation and benefit consumers.

In practice, however, leading companies—either those who pioneer a field or those with higher levels of initial capital and/or investment—commonly use their financial power to limit the competitive capabilities of rivals. The ability to influence a market so as to set prices for an industry is known as “market power,” and a company with sufficient market power can successfully eliminate competition so as to form a monopoly, a system in which a single company can become the sole provider of a service or product. Monopolies and trusts frequently raise prices and place less emphasis on producing better products, and therefore tend to be detrimental to consumers.

Critics of Big Tech argue that tech companies must be controlled to prevent them from using their power and influence to limit competition to the detriment of consumers. Supporters of Big Tech argue that the companies provide essential products and services for consumers and should be free to use whatever tools are necessary to compete effectively in the global economy.

Understanding the Discussion

Free market: An economic system in which the cost of products and services is determined via competition between private companies occupying the economic marketplace.

Horizontal integration: The acquisition or merger of one company with others that provide the same services or goods; a potentially monopolistic action.

Market power: The ability to raise prices above competitive levels.

Monopoly: Exclusive control of the supply of or trade in a certain product or service.

Monopoly power: The capability to exclude competition or to control prices within an industry.

Natural monopoly: A type of monopoly that comes into existence not through corporate misbehavior but because of inherent difficulty in entering a certain economic field.

Trust: In economic terms, a monopolistic agreement among companies to reduce competition and fix prices in an industry.

Vertical integration: The acquisition or merger of one company with others to increase control over its supply chain; a potentially monopolistic action.

History

The threat of monopolies became a major subject of concern for Americans during and after the Industrial Revolution of the nineteenth century, and it was during this time that the federal government first passed legislation that gave the government the power to regulate industries so as to prevent monopolies and trusts. The basis of federal law on trusts and monopolies is the Sherman Anti-Trust Act of 1890, which outlaws certain agreements, monopolies, and economic conspiracies with the potential to undermine free interstate or international trade. Under the Sherman Anti-Trust Act, it is a federal crime for a company to monopolize all or part of any interstate trade, and individuals found guilty of violating the act may face felony charges, along with fines and prison time, if convicted.

The Clayton Act of 1914, the next antitrust law established, is a civil law that contains no provisions for criminal charges. Under the act, companies over a certain size are prohibited from mergers or acquisitions, whether vertical or horizontal, that are likely to reduce competition significantly, based on an analysis of whether the proposed merger or acquisition is likely to increase costs or reduce options for consumers.

Finally, the Federal Trade Commission Act of 1914, another civil law, outlaws unfair competitive practices and requires companies to provide accurate information about the goods and services being offered to the public.

The antitrust movement thrived in the early twentieth century thanks to widespread calls for economic reform. Successes for antitrust advocates included the breakup of the Standard Oil Company and the American Tobacco Company. Interest in antitrust legislation and enforcement waned through the 1920s and 1930s but was renewed in the postwar 1940s, remaining high through the 1970s. At that point conservatives began gravitating toward closer ties with big businesses and away from so-called trust busting. Economists frequently discuss this change in priorities in relation to the rise in popularity of the Chicago school of economics, which posits that free-market systems are self-correcting because rational self-interest eventually leads to market correction and balances situations in which one or more companies achieve market power. Adherents of this philosophy also argue that government intervention has been complicated, at times confusing, and often of limited effectiveness.

One of the next biggest antitrust cases was a suit brought against the software company Microsoft in the 1990s. Among other issues, the company’s practice of bundling and defaulting to its own internet browser, Internet Explorer, within its Windows operating system was seen as anticompetitive. In 2000 a district court judge demanded the tech giant be broken up, but the DC Circuit Court of Appeals ruled that Microsoft had valid technical reasoning for some of its action but did not provide sufficient procompetitive benefits. The company ultimately settled with the Department of Justice (DOJ) in 2001, with the agreement that their competitors could integrate further with Windows, and remained a single entity.

In the 2010s interest in antitrust law and legislation resurged because of the way that the internet and digital technology industry had evolved. Between the mid-2000s and 2020, the Big Four companies effectively dominated the technological market. These four companies—Alphabet (the parent of the better-known Google), Amazon, Facebook, and Apple—initially offered different products and services: a search engine, online marketplace, social media platform, and personal computers. Over time, however, those companies have branched out into many different markets, sometimes leading them to provide similar products and services. For instance, Google and Apple developed competing operating systems for smartphones. Each has also engaged in practices that critics believe constitute violations of antitrust laws and/or principles.

Some see the potential for the Big Tech companies to develop dominant market power as greater than in other industries because the products and services being offered are complicated; most consumers have little direct knowledge necessary to effectively make buying decisions; and the social and cultural reliance on technological products and services dramatically increased before governments could evaluate the situation and determine whether intervention was needed to ensure that the Big Tech companies would not use their power to disadvantage consumers.

Under President Donald Trump, who was elected in 2016, the federal government took an interest in using antitrust legislation to police the Big Tech industry. Some observers argued that the Trump administration’s interest in the issue was motivated, at least in part, by Trump’s perception that the Big Tech companies or leaders had been unfair to him personally. Some Republicans also alleged a broader anticonservative bias in technology. For example, Trump and congressional Republicans accused Google of purposefully organizing search engine results so that photos of Donald Trump would result if a user searched for the term “idiot”; company representatives countered, however, that Trump’s photo became the leading image result on the Google search engine for searches involving the term because so many different posts, websites, and articles had associated Trump with the term to that point.

In November 2017 the Department of Justice (DOJ), under Trump, challenged a proposed vertical merger between AT&T/DirecTV, a telecommunications distributor, and Time Warner, a media content provider. The DOJ argued the merger would raise prices and inhibit competition from online distributors, limiting consumer options. The merger was allowed to proceed in 2019 after Time Warner and AT&T executives persuaded an appellate court that the merger would increase options for American consumers and actually lower prices. Nevertheless, the DOJ intervention was the first time that the government had questioned a vertical merger in decades. Some analysts accused Trump of seeking to undermine the deal because Trump alleged Time Warner–owned media, like the news outlet CNN, had been biased in its coverage of him.

Big Tech and Antitrust Law Today

In 2019 the US House of Representatives engaged in a major, bipartisan investigation of antitrust violations among the Big Tech companies. Legislators raised a number of issues and concerns. The DOJ and Federal Trade Commission (FTC) also launched investigations into the Big Four, at least one of which had previously faced scrutiny and fines from the European Union for anticompetitive practices. Allegations included that Google Search engaged in potentially prohibited exclusive deals to disadvantage competitors; Amazon had engaged in predatory pricing and discriminated against third-party vendors in its online retail space; Facebook acquired potential rivals in an anticompetitive fashion; and Apple forced iPhone users to obtain compatible smartphone applications only from its own store.

In October 2020 the DOJ, along with a group of state attorneys general, filed an antitrust lawsuit against Google alleging that the company had employed anticompetitive practices such as exclusionary agreements requiring that its search engine be set as the default search application, without the possibility for change or deletion, on many mobile devices, computers, and web browsers. The high-profile trial around this case, in which the plaintiffs argued that such behavior in favor of maintaining a monopolistic market dominance came at the cost of consumer choice, began in the fall of 2023. Google countered that its agreements were not in violation of antitrust law as they did not prevent the development of rival services, and that its prevalence was the result of its preferred quality. The FTC, meanwhile, filed an antitrust lawsuit against Facebook later in 2020 on the basis of anticompetitive conduct, particularly involving the acquisition of rival applications such as Instagram and WhatsApp, that it then amended in 2021. In September 2023, the FTC and seventeen state attorneys general also filed an antitrust lawsuit against Amazon, claiming that the company had long used unfair, competition-stifling strategies such as pricing algorithms and deterrents as well as overcharging sellers to maintain its dominance at the expense of customers. Earlier in the year, as the DOJ filed another lawsuit specifically targeting Google's digital advertising technology practices, the FTC had lost an antitrust case in which it aimed to stop the Facebook parent company Meta from acquiring a virtual-reality start-up.

In March 2024, the DOJ's crackdown on Big Tech continued when it filed a lawsuit against Apple, alleging that the company, worth a massive $2.75 trillion, violated antitrust laws. Along with sixteen states, the DOJ claimed that Apple instituted practices designed to make customers use only iPhones and prevented other companies from developing competitive products. The DOJ argued that such practices harmed both consumers and smaller businesses that attempt to compete with Apple, creating an uneven playing field and a smartphone monopoly. The landmark lawsuit further alleged that the tech giant designed many of its features and services, such as its Bluetooth technology, to only be compatible with Apple products.

For their part, Big Tech companies have argued that they provide significant value to consumers and benefits to American society. Supporters warn that increased regulation could stifle innovation domestically and even inadvertently spur technological growth in rival countries.

These essays and any opinions, information, or representations contained therein are the creation of the particular author and do not necessarily reflect the opinion of EBSCO Information Services.

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