Antitrust Law & the Tech Companies

The Department of Justice has announced a wide-ranging antitrust investigation into “market leading online platforms.” Although the Department of Justice did not name names, the obvious targets are companies like Google, Facebook, and Amazon. The federal antitrust laws are complex, meaning this made it a good time to talk about what they do.

 “Antitrust” laws first came about to break up the business trusts that industrialists had used to build up monopolies in the same industry. The label has stuck ever since.

The two most important antitrust laws are both more than a century old. Congress enacted the Sherman Act in 1890 and fixed its loopholes in 1914 with the Clayton Act. These two laws provide only fairly general rules. Where the real action lies is in one hundred years of case law. The introductory law school class on antitrust law spends forty-two hours to cover it. We have a little under three minutes left.

The central challenge of antitrust law is that competition characterizes market exchange, but successful competition also necessarily harms other businesses. Customers flock to businesses with better products and prices. These businesses can grow very large and crowd out competitors, who may even fail. But, that is all okay and just part of a market economy.

The antitrust laws have to draw lines between acceptable competition, and competition that crosses the line. At the cost of some overgeneralizing, the antitrust laws say four categories of conduct cross the line. First, buying up the competition through mergers is illegal when the merger would “substantially lessen competition.” Merger cases usually arise after the merger is announced but before it is completed as in the Department of Justice’s review of T-Mobile’s upcoming acquisition of Sprint.

The second category of illegal conduct is outright collusion between competitors such as fixing prices by agreement. This type of conduct is often punished criminally in addition to civil penalties. There is no reason to think the Department of Justice is concerned about collusion between companies like Google, Facebook, and Amazon.

A third category of illegal conduct is when a company leverages monopoly power in one market to influence a different market where it does not have monopoly power. A well-known example occurred in the 1990s when Microsoft embedded a web browser in its Windows operating system. The Department of Justice successfully argued that Microsoft was using its monopoly over computer operating systems to disadvantage competing web browsers. It is possible that the investigation might develop similar facts with the large online companies, but it is also not clear how to define the markets in which each of these companies operate. For example, is Google search a distinct market from its restaurant reviews?

The final category is somewhat of a catch-all called “monopolization,” and this is where the Department of Justice investigation most likely could gain traction. A common misconception is that it can be illegal under the antitrust laws for a company simply to be “too big.” That is not true. A company must have a monopoly and also have committed some sort of wrongful market conduct to get or maintain the monopoly, such as conduct that tries to exclude competitors from a market.

The data Google, Facebook, and Amazon collect about their consumers and how they share those data can prevent new competitors from emerging who might offer consumers a different deal in exchange for their data. It is far too early to know where the Department of Justice’s investigation might lead. But, given how these company’s services have become a central part of our daily lives, it could lead to major changes. A similar Department of Justice investigation into AT&T once changed everything about how we used the phone. This investigation could similarly rearrange our online lives.