by Jonathan Wen

Introduction

Since the late 1800s, the U.S. has implemented three main laws in an attempt to combat anticompetitive business practices. These three pieces of legislation are known as “antitrust” laws because they helped to dissolve some of the large trusts of the 1800s.

The first of the aforementioned laws is the Sherman Act which makes it illegal to make business agreements with the aim of limiting competition. It also prohibits any corporation from monopolizing. The second of these antitrust laws is the Clayton Act which prohibits mergers and acquisitions that hurt competition. The newest of these antitrust laws is the Federal Trade Commission (FTC) Act which created the FTC and gave it the power to investigate and act on unfair and deceptive business practices.

This multi-part series will address the many issues regarding the possibility of strict enforcement of antitrust legislation on big tech. This article will focus on the effects of its enforcement on tech startups and its need.

Background

In recent years, the technology sector has been booming. Companies like Apple, Microsoft, and Alphabet are worth almost 1 trillion dollars. Additionally, the technology industry has been growing at unprecedented rates due to advancements such as artificial intelligence. Meanwhile, the U.S. has decreased the number of anti-monopoly cases it pursues from 15 between 1970 and 1999 to 3 between 2000 and 2014.

However, some are starting to think of enforcing antitrust laws on tech giants more strictly. Trump has even commented that some companies like Facebook and Amazon may be an “antitrust situation”.

Tech Competition

Although some tech companies such as Amazon and Facebook have immense net worths, this does not mean that there is a lack of competition in the tech industry. Murray and Khurana of Investors Business Daily explain that these huge companies are constantly grappling with each other for a larger market share.

For example, Facebook’s attempted to “kill of Snapchat with its Camera app”; Google attempted to beat Facebook through the creation of Google Plus; Amazon tried to enter the phone market with the Fire phone; and Google has created the Pixel.

In addition to this, “none of the Big 5 tech companies (Alphabet, Amazon, Microsoft, Apple, and Facebook) have below a 60% approval rating.” Even if competition was inadequate, this statistic shows that a lack of competition is not severely hurting consumers which means that antitrust enforcement is not needed.

Tech Startups

One of the largest potential harms of enforcing antitrust laws on tech giants is that it would decrease mergers and acquisitions. This is particularly harmful for innovation as the success of tech startups is dependent on the possibility of acquisitions. Relihan of MIT Sloan of Management elaborates, stating, “When the rate at which companies are acquiring is high, the chances a startup will get bought is also higher and therefore the incentive for more entrepreneurs to launch businesses that innovate also increases.”

Additionally, it is less likely that investors will devote capital to a startup that has no possibility of eventually being acquired by a larger corporation. McArle of the Washington Post explains that venture capitalists invest in tech startups with the expectation of it being acquired later on.

Hogg of the Entrepreneur Magazine explains that startups have an inherent advantage when it comes to innovation. This is due to things like decreased risk and optimized organizational structure of startups. This is key as a decrease in tech startups would result in an overall decrease in research and development (R&D) investment in the technology sector.

Conclusion

Antitrust regulations should not be more strictly enforced on large tech firms because it is not necessary and it would decrease innovation. This decrease in innovation is particularly damaging as technological advancements have helped to significantly improve the quality of life for all in recent years. Apart from the aforementioned reasons, there are still other issues regarding stricter enforcement of antitrust regulations on big tech companies. They will be elaborated on in the second iteration of this multi-part series.

 

Jonathan Wen is a Policy Research Fellow at the American Freedom Institute

Featured Image Credit: By Joseph Ferdinand Keppler – http://www.senate.gov/artandhistory/art/artifact/Ga_Cartoon/Ga_cartoon_38_00392.htm, Public Domain, https://commons.wikimedia.org/w/index.php?curid=24889994

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