The main tool used by regulators to address big tech issues is antitrust legislation. Can they enhance competitiveness without hindering creativity?
September 10, 2024, was a legal catastrophe for Apple and Google. This was a rare victory for the European Union’s (EU) regulatory framework in its ongoing battle with big tech. While Google was unable to appeal a €2.4 billion fine for abusing its dominance in online searches, the European Court of Justice decided that Apple should reimburse the Irish tax authorities €13 billion in overdue taxes.
This was not a short-term victory for the EU’s former competition commissioner, Margrethe Vestager, a fierce opponent of big tech to her detractors and a champion of fair competition to her allies.
A worldwide crackdown
The EU is not alone in its efforts to control the companies that dominate digital search and advertising (Google), e-commerce (Amazon), social networks (Meta), and cellphones (Apple). There is an ongoing global wave of regulatory crackdowns on the dominant digital companies, extending from the United States to India. Governments use antitrust laws, an outdated weapon against this new foe, and the threat of mergers as the last punishment to force violators to comply.
Big tech is the target of such a strong reaction for four reasons. One is the long-standing worry among antitrust scholars and regulators that competition in the tech sector is dwindling as a result of major corporations using their power to hinder new competitors, which stunts economic growth and innovation.
Regulators like Vestager and her US counterpart Lina Khan consider themselves contemporary counterparts of the first US president to take on monopolies, Theodore Roosevelt.
Christopher Sagers, a specialist in antitrust law at Cleveland State University, argues that the antitrust activity of the early 20th century serves as a precedent for the increasing attention Big Tech is receiving due to the rapid changes in technology.
Politics also comes into play. Scepticism toward elites, large corporations, and the media is the foundation of both left and right populism. Tech companies and their executives, like Mark Zuckerberg, the founder of Facebook, serve as prime examples of this.
Rising geopolitical tensions and deglobalization are also forcing governments to control multinational firms, with antitrust laws essentially turning into protectionist instruments. Measures against US IT businesses may be connected to EU concerns about the bloc’s decline in competitiveness, which were articulated in a recent report written by former ECB chief Mario Draghi.
Platform economies have finally reached a critical point. The degree of horizontal and vertical integration these businesses have attained is remarkable given the growing convergence of digital technology. When you think of Google, it is not only a business but also an ecosystem that encompasses email, mobile operating systems, and internet search, all within its domain.
The valuation of its parent firm, Alphabet, which holds more than 4% of the S&P 500 stock market index, reflects that. Amazon has created its own e-commerce empire, but Facebook and Apple are similar in their extensive businesses.
Governments are facing pressure to create equal opportunities for software developers and Amazon’s suppliers. Regulators are now compelled to act before it’s too late due to the emergence of AI. However, because the consequences are uncertain and the actions taken may be ineffective, this complexity is precisely what makes antitrust litigation against computer firms difficult.
Breaking up is difficult
Big tech now has to contend with authorities that have a robust antitrust agenda after decades of unchecked expansion.
Jonathan Kanter, the head of the Department of Justice’s (DoJ) antitrust unit, has made it his goal to crack down on digital oligopolies, and Lina Khan, the chair of the Federal Trade Commission (FTC), established herself as a prominent scholar with a seminal paper on Amazon’s monopolistic practices. Regulators believe that antitrust laws have been underutilised for a long time, especially when it comes to possible emerging competitors.
According to John Yun, a former FTC executive and antitrust law expert who teaches at George Mason University, there is a belief that conglomerates are becoming more significant in terms of the scrutiny they merit and that mergers are too permissive.
For the EU, competition is just as important as competitiveness when it comes to regulating big tech. The primary target of this regulatory onslaught at the moment is Google. The DoJ suggested in October 2024 that dismantling the company would be one way to disrupt its monopoly on internet searches.
Judge Amit Mehta declared that the company had engaged in “monopolistic” behaviour in its quest for search supremacy and had broken antitrust laws.
Google may be forced to provide solutions, like sharing search data with rival companies or even selling off its Chrome browser and Android smartphone operating system, which it uses to advertise its search engine. Importantly, it might have to renounce a $20 billion exclusivity deal with Apple that sets Google as the default search engine in Safari, the company’s browser. We anticipate a ruling by August, despite Google’s anticipated appeal to the Supreme Court.
The antitrust issues with Alphabet don’t stop there. A separate DoJ action has also been filed against the company for engaging in anti-competitive behaviour in its digital advertising division. Despite its less well-known nature compared to its dominance in search engines, advertising effectively regulates supply, demand, measurement, and online ad auctions, making it the company’s true asset.
Furthermore, a San Francisco court ordered Alphabet to make Android available to competitors in October 2024, allowing Android apps to be sold on app stores other than Google Play and be paid for using different methods.
According to Sagers from Cleveland State University, Google may be an exception even though break-up orders are uncommon because courts dislike them and governments primarily use them as a negotiating tool to scare businesses into making concessions.
The company has been accused of a variety of anti-competitive practices and has established power in several industries, so “the situation that Google currently finds itself in maybe uncommonly favourable to a breakup remedy,” he says.
He contends that the government’s entire thesis is that Google leverages its control of various components of the “ad stack” to drive out rivals and raise costs, making the separation of its ad tech division the most likely course of action. They may be less inclined to act in an anti-competitive manner if the various components are divided up and given to different owners.
Digital platforms have created network effects, which means that they offer a service whose appeal is based on the strength of the crowds: the more people using it, the better it is. This explains why there haven’t been many tech breakups. Since the resulting companies would not be able to achieve prior efficiencies or might even attempt to combine again, breaking them up is impracticable and costly.
“The government might argue that if Chrome and Android were broken off into separate firms, which don’t directly profit from search engine ad revenues, they would no longer have the incentive to give preference to Google search over competing search engines,” says Sagers, indicating that a structural remedy for Google’s search dominance would make sense in this particular case.
Apple is facing a DoJ antitrust action for using its dominating position in the US smartphone market—roughly two out of every three cellphones sold in the US are iPhones—to make it more difficult for customers to switch to third-party software and hardware.
The FTC is also pursuing antitrust complaints against Amazon and Meta, alleging that the latter has stifled competition from other shops on its e-commerce platform and favoured its own goods and services, while the former has monopolised social media through its acquisitions of Instagram and WhatsApp.
More concerningly, the regulator has opened an enquiry into digital pricing discrimination, which has the potential to upend one of the digital economy’s main tenets: how businesses utilise user data to determine personalised prices on the internet.
The lack of pertinent precedents contributes to the regulatory dilemma. No tech firm has experienced a similar destiny since the dissolution of the US telecom giant AT&T forty years ago.
The demise of Bell Labs, a research centre, is cited by some as one of the reasons why the US was left without a major player in telecommunications technology, allowing foreign competitors to emerge, even though others think that the separation increased competition in certain areas of the market that drove the internet explosion of the 1990s.
Another risk is that oligopolies can gradually reorganise, as was the case with AT&T, according to Sagers, “Lax merger enforcement allowed the companies that had been broken up to slowly knit themselves back together into larger and larger companies, until once again just a handful of firms controlled all of the communications.”
Other antitrust tools could include requiring interoperability and data portability: “Both might effectively break the impact of network effects that is cementing the market power of large companies,” says Luise Eisfeld, a digital platform expert and finance professor at HEC Lausanne.
Europe’s predicament
Many critics have accused the EU of using antitrust law as a protectionist instrument because they believe that regulating big tech is as much about competition as it is about competitiveness. The phrase “competitiveness” is used to suggest that we should combat large, non-EU firms in order to permit EU corporations to combine and concentrate, which is extremely risky.
Claire Lavin, a researcher at the antitrust think tank Open Markets Institute, warned that in practice, this approach could inadvertently enable EU-based oligopolies or monopolies to thrive, ultimately harming businesses and consumers. It may also pave the way for the rise of so-called “EU champions,” raising concerns about protectionism disguised as competition policy.
For possible infringement of the EU’s Digital Markets Act (DMA), which attempts to stop IT giants from abusing their dominant position and promoting the growth of innovative businesses, the Commission opened an enquiry against Apple, Meta, and Alphabet this spring.
It identifies “gatekeepers,” or platforms with at least 45 million users in the EU and a turnover of at least €7.5 billion, as possible offenders. The Commission is looking into whether the businesses permit app developers to provide customers options outside of their storefronts. Google is also being criticised for favouring its own services over competitors in its search results, despite having paid €8.25 billion in EU fines in the past ten years.
The company owns several tools, such as the ad management platform Google Ad Manager, the exchange AdX, and the buying platforms Google Ads and DV360. This creates a conflict of interest that can only be resolved by selling these tools, according to the Commission’s claim in a different case that it is using unfair business practices to protect its ad tech business.
Business breakups may potentially disrupt a growing EU tech ecosystem, which the Draghi study identifies as a source of future growth. Oles Andriychuk, a professor at the University of Exeter who specialises in competition law and digital marketplaces, believes that “it could backfire, generating criticism and even cancellation of so many new ideas that get developed on the basis of traditional competition law.”
Facebook’s parent company, Meta, could potentially face fines for purportedly attempting to regulate classified advertising. EU regulators anticipate that the company undercuts competition by connecting Facebook and Marketplace, an e-commerce site.
The company has also come under fire for charging users for ad-free versions of its social networks and using data gathered from third parties to sell consumers advertisements. In addition to its tax issues in Ireland, Apple was hit with its first antitrust fine of around €1.8 billion in March for giving preference to its own music streaming service over rivals.
Vestager led a trust-busting campaign against tech corporations, lobbyists, politicians, and even Eurocrats during his ten years as the EU’s antitrust director. According to Andriychuk, “The European Commission found it increasingly difficult to meet the higher evidentiary standards set by the European Court of Justice in its current composition, but the Commission still prevailed in a number of cases.”
Teresa Ribera, her replacement, has joined a new commission whose goal is to support the establishment of large digital companies in the EU, as outlined in the Draghi report. In competition cycles, industrial policy terminology had a poor reputation for many years.
Andriychuk notes that people have begun to rediscover the connection between industrial policies and competition since its partial restoration. Ribera will also need to strike a balance between competing priorities, though.
China: First major tech killer
The first superpower to use antitrust laws to limit the influence of its IT companies was China. All of this began in late 2020 when Alibaba co-founder Jack Ma made an anti-government speech.
In addition to China’s financial regulator forcing the company to restructure in order to comply with financial regulations and suspending Alibaba’s sister company Ant Group’s initial public offering (IPO), Ma’s rebellious attitude infuriated the authorities to the point that he had to leave the public spotlight.
Wendy Chang, a specialist in Chinese digital policy at the think tank Mercator Institute for China Studies (MERICS), contends that the group’s aggressive foray into finance, which went against the government’s goal to maintain control of the sector, may have been the catalyst for the intense response.
Alibaba was also the subject of an enquiry by China’s competition commission, which fined it a record ¥18.2 billion (£1.96 billion) for abusing its dominance in e-commerce. This was only the start of a larger crackdown.
Chinese authorities forced the nation’s largest tech companies, such as Tencent Holdings, Meituan, the food delivery company, and ByteDance, the owner of TikTok, to alter their monopolistic tactics after they issued guidelines to curb digital monopolies.
Chang claims that the government’s preference for manufacturing investment over services was one factor behind the crackdown. After regulators looked into earlier merger cases and fined Alibaba, Tencent, and ride-hailing behemoth Didi Global for failing to report deals for antitrust reviews, there was a sharp decline in tech mergers and acquisitions.
Another regulatory guideline advocating for a more robust model of development for the digital sector marked the official conclusion of the clampdown. Authorities acknowledged the significance of tech platforms for economic growth even as they upheld their commitment to combat monopolies.
One long-term effect is that the Chinese government now has representation on the boards of significant digital platforms, which allows them to influence their strategy and even obtain their data. Chang asserts that a significant decline in stock market value has already caused considerable harm.
The majority of impacted businesses have not yet recovered, which limits their capacity to develop and expand in industries that the government disapproves of, such as gaming, virtual currencies, and financial services.
Should we dismantle AI giants?
Artificial intelligence has evolved beyond the realm of science fiction since ChatGPT’s debut in 2022. Globally, billions of people are already using generative AI, which creates texts, images, and movies. Microsoft, Amazon, and Google have taken note, purchasing hundreds of AI start-ups and providing cloud services and cash to AI engineers in return for licenses and stock.
Because creating sophisticated AI models requires expensive processing hardware, energy, and data, established tech companies have an advantage over smaller rivals, which raises fears that they may also control this industry.
One example is Microsoft-backed OpenAI, the company behind ChatGPT. But, AI is also predicted to upend industries where big tech now controls the majority, like search, where OpenAI is creating SearchGPT, an AI-powered search engine that might challenge Google’s hegemony.
Restrictions on Google’s use of third-party data to train its AI models are among the remedies proposed by the US DoJ in its lawsuit against the company, which raised fears that it would utilise its distinct dominance in important areas to create an AI empire.
Should antitrust action be taken against the emerging AI behemoths before it’s too late? Given the substantial obstacles for new entrants, some believe that is essential.
“The current dynamics of the AI ecosystem give incumbent tech giants like Alphabet, Amazon, and Microsoft the ability and incentive to entrench their power in AI markets and suppress meaningful competition,” says Jack Corrigan, a researcher at Georgetown University’s Centre for Security and Emerging Technology, while adding, “Competition authorities seem to be aware of these changes. They can keep the market for AI products from becoming as stagnant as the markets for other digital technologies by closely watching how these companies act and stepping in as needed.”
Some believe that governments should intervene by providing public resources to reduce the reliance of AI developers on large technology companies. Lavin of the Open Markets Institute says that another way to stop oligopolies from controlling AI is to make the laws that control mergers and other anti-competitive behaviour stricter. This could include looking into breakups.
While regulators globally have ramped up their efforts to curb the power of big tech, the balance between promoting competitiveness and facilitating innovation remains delicate. Antitrust actions, like those in the EU and US, are aimed at preventing monopolies from stifling new competition, but they also risk stifling creativity and technological growth.
The cases against companies like Google, Apple, and Amazon highlight the complexity of regulating industries marked by rapid innovation and network effects. As AI and other emerging technologies grow, regulators face new challenges in ensuring fair competition without hindering the very innovation that drives technological progress.
Moving forward, policymakers must carefully navigate this intricate landscape to create a fair, competitive environment that allows both new and established players to thrive.