Antitrust laws threaten GAFA

Facebook faces antitrust laws. Could Google and Amazon be the next?

The creation of large monopolies was a logical consequence of capitalism observed by economists, both liberal and socialists, in the 19th century. Characters like Adam Smith, Proudhon, or Karl Marx pointed them out, some as a consequence of free competition and others as enemies of it.

At present, the technology industry is raising the alarm again on this topic, which is why antitrust laws in the United States are beginning to target these companies.

In December 2020, the Free Trade Commission (FTC), along with 48 states, sued Facebook and asked that WhatsApp and Instagram be divided, arguing that these acquisitions should not have been allowed in the beginning. What motivates this demand and what are its possible consequences?

A brief history of antitrust laws

For the United States, the real danger of monopolies became evident at the end of the 19th century with the creation of large trusts controlling key industries such as steel, oil, sugar, or the railroads. Prices increased while the service or quality of the products did not improve. The discontent of the population for the power of these industries grew until in 1890 the United States Congress passed the first antitrust law, known as the Sherman Act.

The Sherman Act prevented companies from creating agreements between themselves to fix prices. However, this was not enough as the companies discovered that they could merge to circumvent these limitations and thus continue to control prices and production. As a result, in 1914 the Clayton Act was passed. In the same year, the Federal Trade Commission Act was created which gave life to a federal agency to observe unfair business practices.

At present, large technology industries have raised the concern of the agencies responsible for monitoring free competition in the United States.

Antitrust laws against tech giants

For most of the 20th century, antitrust laws in the United States played a very important role in limiting the power of large corporations. In some cases, these laws reached the point of preventing the merger of a shoe company that would allow it to reach 2% of the national market.

However, technology companies began to grow and proliferate at a time when large corporations were no longer viewed with suspicion. The economic theories of the Chicago School supported the idea that large corporations helped reduce production costs and benefit consumers with lower prices.

With this new policy, antitrust lawsuits have been reduced and few have touched large technology companies. The case of the United States against Microsoft is one of the few exceptions to this rule.

In 1998, the software company Microsoft was accused of carrying out monopolistic practices that benefited the distribution of its operating system and its Internet Explorer web browser.

Initially, Judge Jackson’s ruling ordered Microsoft to split into two different companies. However, the sentence was considered excessive and Microsoft reversed the result on appeal. Despite being less excessive, the final sentence was criticized by Milton Friedman, who defended the existence of large corporations. Meanwhile, economists Jenkins and Bing expressed in the Journal of Business & Economic Research that the decision had little impact on the company’s behavior.

GAFA has been in the spotlight for a couple of years

The role that companies such as Google, Amazon, Facebook, or Apple play in the United States economy has caused concerns about the creation of large monopolies to rise again in recent years. In 2017, Chris Sagers singled out Amazon for monopolistic attitudes especially over the Whole Foods acquisition, while lawyer Lina M. Khan compared Amazon to the rail companies of the 19th century in the Yale Law Journal. While the latter were the only options for many companies to transport their goods, Amazon became the main means by which companies can catch up with their competitors.

For his part, the editor of the Economics section of The Guardian Larry Elliot compared these companies with the oil companies of the 19th century, as the data was the oil of the 21st century. Quoting Adam Smith, Elliot claimed that its excessive market presence ultimately undermines progress by preventing access to new competitors.

To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it.

Adam Smith

Will a new progressive era emerge?

From the extreme right (like Steve Barron) and the North American left (like Elizabeth Warren) they currently advocate putting limits on technology companies. If the lawsuit against Facebook forces the company to split, it will set a precedent in future lawsuits against Amazon or Google, which also have a portfolio of small businesses and services.

These demands, in turn, may be the needle that pricks the rapidly rising technology bubble in the full pandemic.

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