Antitrust in the Internet Age

data antitrust regulations policy

While many of the best-known tech companies like Microsoft, Facebook, and Google — companies that control huge amounts of user data and considerable market share — have largely avoided antitrust scrutiny in the past, changes are imminent as pressure mounts from both North America and Europe.

Tech companies have become some of the highest-profile defendants in antitrust cases over the course of the past few decades. The antitrust regulations that these and other companies have violated are intended to maintain a level playing field for companies and a fair marketplace for consumers. While the details of antitrust regulation vary from country to country, these regulations are almost always designed to prevent or discourage any activity that might limit or impede fair competition in a given market, or that might result in an unfair market for consumers. Here, we outline some of the major areas of antitrust regulation and give a few examples of when other companies have run afoul of regulators to provide a clear idea of unacceptable activities. 

Relevant Antitrust Regulations

Antitrust regulation in Canada and the United States are largely similar in spirit, though the mechanisms by which they are applied and enforced differ greatly. Under Canadian regulatory practices, antitrust regulation is divided into two categories: non-criminal (civil) reviewable practices and criminal practices. The latter classification includes offences like the operation of or participation in a cartel, bid-rigging, and misleading advertising. Reviewable practices include mergers, price maintenance, and abuse of dominant position, and is the more relevant category to examine. It might be worth mentioning that many of the thresholds for these practices are updated on an annual basis. For example, pre-notification of planned mergers are only necessary if the parties involved - along with their affiliates - possess assets or gross annual revenues in excess of $400 million CAD. Similar restrictions also apply to the acquisition of voting shares and amalgamations, but these regulations are more complicated. Nevertheless, it is important to keep up-to-date on these regulations to ensure that any requirements are being met. 

Platform Lock-In

In the context of antitrust regulations, Platform Lock-in occurs when a company exploits the difficulty in changing vendor/service providers in order to keep existing customers and stifle competition. Issues of vendor lock-in are particularly apparent in marketplaces that have a small number of very powerful players, such as in cloud computing/storage space. For example, with Amazon Web Services (AWS) having achieved an estimated 48% market share of this area, the technical limitations which make switching from AWS to Microsoft's Azure might be seen as an example of vendor lock-in.4For smaller firms, the technical limitations in this situation are unlikely to attract the scrutiny of antitrust regulators, since the market has large, established competitors who consumers could rely on for these services.

Abuse of Dominant Position

Abuse of Dominant Position is obviously predicated upon a firm having established a dominant position within a given market, the definition of which can vary widely. In Canada, market share is used as a general baseline for when an investigation into abuse of dominant position might be triggered. For an individual firm, this baseline is 35% market share, while for multiple firms that are allegedly working together to dominate a market this baseline is a combined 60% market share. If these market share thresholds are met, then a company may be investigated for abusing its dominant position if it appears to engage in any of the many types of abuses that could be committed. Predatory or exclusionary intent is also an important factor in establishing an abuse of dominant position, as some actions that are considered to possibly be abusive could be carried out without intent to lessen or prevent competition in the market. 

Exclusive Dealing

Exclusive Dealing refers to actions in which a firm compels a customer to only purchase supplies or services from them, typically done by offering more favourable terms or conditions. Like other antitrust regulations, other factors are what make these actions violations, as the offending firm has to be deemed a major supplier of a given product, and the action of exclusive dealing would have to show evidence of substantially lessening competition.7 

Price-fixing Conspiracies

Price-fixing Conspiracies are of particular concern to some of the modern tech giants which are involved in the so-called "gig economy". Uber is one such tech giant which might be facing regulatory pressure relating to this issue in the near future. Because Uber classifies its drivers as independent contractors and sets prices for its services, some regulators could view its operations as a massive price-fixing conspiracy involving thousands of individual businesses. As a result, Uber might have to choose between exercising centralized control over pricing and classifying its drivers as independent contractors. This means that Uber may be forced to choose between operating as a platform that facilitates connections for other businesses — similar to how Airbnb simply connects renters to property owners — and a centrally-controlled, regular business with regular employees. In the former scenario, Uber would lose control over its ability to dictate prices, while in the latter it would need to pay a minimum wage and provide employment benefits for all of its drivers. While Uber is one of the largest and best examples of this issue, it is important for platforms of all sizes to recognize that they may not always be allowed to enjoy the best of both worlds in this regard. 

Antitrust Regulation in the Internet Age

Antitrust regulations have not yet adapted to the internet age and the resulting digital economy. They are still largely based on legislation and thinking from the early 20th century when the Second Industrial Revolution introduced new technologies and new monopolies. As a result, current antitrust policy is unequipped to meet many of the new threats that have emerged with the advent of personal computers and the internet age. 

The current antitrust model focuses on pricing rather than market structures and competitive process which means anticompetitive practices can go undetected so long as consumer prices remain low. The problem with this model is that it fails to recognize when markets become uncompetitive and dominated by monopolistic players as long as they keep prices low, which is something that Amazon has been able to do.

However antitrust legislation has already begun to adapt to the modern era and seems to be taking hold among relevant authorities. The FTC currently has multiple investigations open related to Facebook, Google/Alphabet, Amazon, Microsoft, and Apple. Google, in particular, has already been targeted by EU regulators having paid fines of $2.7 and $1.9 billion USD as a result of past rulings. Nine state Attorneys General in the U.S. are currently cooperating in an investigation of Facebook. These efforts signal that antitrust in relation to platforms is beginning to be taken more seriously and acted upon and should serve as notice that unbridled monopoly activity by major tech firms will no longer be allowed. 

Preventing mergers or acquisitions among the tech giants is an area of antitrust regulation that could become more relied upon in an effort to prevent tech firms from gaining undue market dominance and advantage. The aggressive acquisition of possible competitors and innovative startups was a key feature in Google and Facebook's rise to dominance, and it is a tactic also employed by Amazon. 

These large tech firms are likely to come under increased scrutiny in the near future, as they are the easiest and more obvious targets for regulators. However, as the larger firms undergo antitrust proceedings related to these issues, it might be wise for smaller firms to modify their behaviour as well.

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