Antitrust and Tech companies
The economist Adam Smith (1723-1790) was a strong advocate of free
enterprise, and he warned of the dangers to free enterprise posed by
monopolies. When monopolies exist, free markets break down. Ever since,
there has been some interest in England and America in legislative
solutions to the problem of monopolies and anticompetitive business
Antitrust law targets anticompetitive practices, though not necessarily
being a monopoly per se. The 1890 Sherman Act, the 1887
Interstate Commerce Act and the 1914 Clayton act forbid price-fixing,
collusion, restraint of trade, and anticompetitive mergers. Price-fixing
and collusion describe illegal actions between competitors. As for when
mergers are "anticompetitive", usually the FTC weighs in, with courts the
The Sherman Act also prohibits "tying"; that is, requiring purchasers of
one item to also purchase related items (such as parts, or ink cartridges)
from the same company. It is also, generally speaking, illegal for a
company to require that repairs be done only by the company's own repair
There is also predatory pricing: underpricing your goods in an attempt to
drive competitors out of business. This works best when the marginal
cost of goods is low; traditional examples are railroad transport (most of
the cost is in building the rail network) and oil (most of the cost is in
drilling for oil). There is a legal theory that, in general, predatory
pricing makes no sense, but note that computers and especially software
also tend to have low marginal costs of goods.
The idea behind antitrust laws is to encourage free markets, on the
theory that, ultimately, free markets will bring the lowest prices to
consumers. One of the earliest uses of US antitrust laws was to break up
Standard Oil Company and the American Tobacco Company in 1911.
The first "high-tech" antitrust lawsuit was arguably the one filed by the
US government against AT&T in 1949; the government was seeking to
separate AT&T from its Western Electric manufacturing unit. The case
was settled in 1956, with AT&T keeping Western Electric but agreeing
to manufacture only telecommunications equipment, and to license its
patents on what would now be called FRAND (Fair, Reasonable And
Non-Discriminatory) terms. Also in 1956 the Hushaphone case led
to allowing third-party devices to be "connected" to AT&T equipment;
at that time, all phones were leased by AT&T to customers. The
hushaphone was an acoustic privacy muffler, but within ten years there
were demands to connect electronically.
A second antitrust case was launched in 1974, with the US government
claiming that AT&T was using the profits from Western Electric to
subsidize its phone lines. The case was settled in 1982 with the breakup
of AT&T. AT&T wanted very much to get into the business of making
computer equipment; the settlement removed, among other things, the 1956
constraint on manufacturing non-telecom equipment was dropped. The breakup
left the main ATT no longer in the local phone business, and created the
seven "regional Bell operating companies": Ameritech, Bell Atlantic, Bell
South, Nynex, PacTel, Southwestern Bell, and US West. Southwestern Bell,
later renamed SBC, has since acquired Ameritech, BellSouth and PacTel, and
the parent ATT itself (and has taken on the ATT name). Bell
Atlantic and Nynex ended up in Verizon, and US West was acquired by Qwest
in 2000 which in turn was acquired by CenturyLink in 2011.
The breakup of AT&T probably did benefit consumers, but only slightly
in terms of lower prices. The real benefit was the rise in availability of
additional telecom services: owning your own phone, modem use, advanced
call features, etc.
The current antitrust targets are Facebook, Google, Apple and Amazon.
Most services for the first two are free, and the traditional indicator of
anticompetitive behavior is that it leads to higher prices for consumers.
This rule is therefore a little difficult to apply. Still, there are lots
of people working on various theories by which Facebook or Google could be
considered anticompetitive in a way that harms consumers. One theory is
that the data we give up to Facebook and Google helps the companies
discover and thwart potential competitors.
IBM was sued for monopoly in (mainframe) computers in 1969. In that year,
IBM agreed to unbundle the sales of hardware and software, effectively
creating a market for software for the first time. The suit itself,
however, dragged on until 1982, at which point the US government dropped
it. IBM's share of the mainframe marketplace had dropped from 70% to 62%;
by this point, DEC was a major computer vendor.
It was Microsoft's turn in 1998. The issue started in 1995, when Netscape
released a better browser, and then a year later Internet Explorer was
bundled in with Windows. Microsoft, in fact, insisted
that IE be the only browser installed on new machines, if a vendor wanted
a bulk windows license (individual windows licenses were and are
MS also famously insisted that to get a bulk license, a computer
manufacturer had to pay for Windows for all
the machines sold, even if some of them were to be sold with a non-Windows
OS (what would that have been? Pre-gnome linux? Maybe the target was IBM's
Finally, a big part of the case was that Microsoft made both Windows and
Windows applications, and the MS application programmers appeared to have
inside information on Windows. Or maybe it was just information that
outside devs never got around to reading.
During the trial, MicroSoft submitted a video of a computer allegedly
underfunctioning because IE had been removed. Alas for MS, the video --
presented as representing a single session -- had been spliced. Such
actions are often considered to be perjury.
When the judge ordered Microsoft to offer a
version of Windows which did not include Internet Explorer, Microsoft
responded that the company would offer manufacturers a choice: one version
of Windows that was obsolete, or another that did not work properly. The
judge asked, "It seemed absolutely clear to you that I entered an order
that required that you distribute a product that would not work?" David D.
Cole, a Microsoft vice president, replied, "In plain English, yes. We
followed that order. It wasn't my place to consider the consequences of
MS's browser strategy was universally seen as a frontal assault on
Netscape, because MS apparently had the idea that it was important to
achieve dominance in the "browser" market.
But if you're giving it away free, one theory back then was that there was
no market. Does that still make sense, given that the offerings of Google,
Facebook and similar companies are almost all free? Alternatively, if
you're giving it away free, then it is quite difficult to argue that
consumers are being overcharged. (There is an argument that Facebook
should actually be paying consumers for their data, but that has
never caught on.)
In any event, the primary impetus for the antitrust lawsuit against
Microsoft was Netscape. Not consumers.
Once upon a time, some people at MS might
have had some notion that, after Netscape was broke, they could resume
charging for IE. That is the sort of behavior that antitrust law is
intended to prohibit. But a more likely idea was that, if MS controlled
the browser market, they would somehow "control" a crucial part of
e-commerce. And, to be sure, controlling the browser would mean that they
could introduce new server
features and be able to guarantee that the browsers out there would
support that feature.
As it turned out, controlling the browser market brought about as much
control of e-commerce as controlling the cash-register-tape market would
have brought control over traditional brick-and-mortar commerce.
MS famously lost their case, at the District Court level. For several
years they had to make it possible to remove IE from windows, either by
owners or resellers. This was also more or less the death knell for MS's
plan to "integrate" the browser with the desktop, ie, to build IE into the
And, for a while, there was an order in place to split Microsoft into the
"Baby Bills": one for Windows, and one for applications.
Did this make any sense? In some ways, integrating the browser into the
desktop is not a bad idea. (In other ways, it's a terrible idea.)
A browser is now seen as the
reason people buy computers. It needs to come with the computer, if for no
other reason that you can't download anything without one. How would I
install Firefox on a new Windows computer, for example, if I couldn't use
IE once to download it? Would I
order a CD by mail?
By 2001, Microsoft won parts of its case on appeal, and, in particular,
the breakup plan was scrapped. Instead, the government asked for more
mundane restrictions, such as fairer licensing terms.
View 1: Microsoft won
One view is that the DoJ case collapsed in 2001, and Microsoft was
allowed to continue with minimal restrictions. It was business as usual.
View 2: The constraints on MS hit at a bad time, and MS never recovered
This view starts with the idea that, starting in 1998, Microsoft was
desperate not to be seen as pushing a monopoly agenda. They therefore
decided not to compete with several new online services. They debated
internally whether traffic to one such service would be shunted by
Internet Explorer to their own service, but, in light of the legal
climate, decided against it.
That upstart service was Google. The Microsoft alternative here was MSN
Microsoft was so powerful, and Google so new,
that the young search engine could have been killed off, some insiders at
both companies believe. "But there was a new culture of compliance, and we
didn't want to get in trouble again, so nothing happened"
MS has tangled with Google since, but no longer from a position of
strength. In 2009 they tried to get the Wall Street Journal to remove
their news content from Google, in exchange for payment. This is an
attempt to get people to have a reason to use bing,
the new MS search engine.
Does anyone use bing?
Here's a couple articles about the 2009 kerfuffle:
More seriously, is this a case of antitrust?
Or is this a case of exclusive content licensing?
One issue is that Google's use of the WSJ is often considered to be fair
use. But Google makes a heck of a lot of money by indexing this content,
from advertising. The estimate in the articles above is that it's in the
range of $10-15 million/year. This is sort of like the youtube lawsuits,
where the media companies really
want a piece of the advertising market that youtube gets for displaying
Google's primary business is advertising. This in turn is driven by
search, including map search. All Google's other projects are attempts
(usually not very successful, by business measures) at diversification.
Google owns the lion's share of the online advertising infrastructure.
Google owns the ad-display infrastructure, the
ad-information-sharing/user-tracking infrastructure and most of the
ad-bidding infrastructure. Google's dominance in user tracking stems in
large measure from the input it receives via Google Search.
Publishers have recently introduced "header
bidding", in an attempt to wrest some control of advertiser bidding
Google's control of advertising clearly hurts competing providers of
advertising services. But does it hurt consumers?
Google and search
Shivaun and Adam Raff created a price-comparison service, foundem.com,
in 2006. Such services are often called "vertical" search. According to nytimes.com/2018/02/20/magazine/the-case-against-google.html,
the service was better than Google's own, then known as froogle.com. Users
were supposed to find foundem.com through a Google search for a product.
For the first two days, all went well. Then, links to Foundem started to
drop in the Google-search pages, quickly reaching the wasteland of page 10
and beyond. For a long time, the Raffs tried to contact people at Google
about what they saw as a "technical" problem.
But Google internal emails suggest a
different cause. "What is the real threat if we don’t execute on
verticals?... Loss of traffic from Google.com because folks search
elsewhere for some queries.... If one of our big competitors builds a
constellation of high-quality verticals, we are hurt badly...." In other
words, maybe Google tweaked its algorithms to make the Raffs disappear.
The Raffs worked extensively with the US
FTC, to no avail. They also filed a complaint with the EU. It was not
until the appointment of Margrethe Vestager, however, as head of the EU
antitrust agency that the case made progress. The investigation began in
earnest in 2015, and in 2017 Vestager announced a fine of $2.7 billion
against Google. By that point, Google's price-comparison service was open
only to paid advertisers, and appeared at the top of the page, though
other companies' individual-product listings would also show up, in the
regular search results. Other price-comparison sites might not appear at
Google has argued that price-comparison
sites are obsolete, and that users are most interested in the
individual-product listings, their own price-comparison service
notwithstanding.This is sort of true, but partly because of Google's past
aggressiveness here. Still, "vertical search" isn't the strategy it once
seemed, even to Google.
Google, Yelp and TripAdvisor
Yelp.com makes reviews available;
TripAdvisor.com focuses on reviews of places you might visit traveling.
Google Reviews offers reviews too. Guess which reviews end up near the top
of Google search? Well, this isn't as clear as it might seem. If we search
downtown chicago", the first two real links are to tripadvisor.com
and yelp.com. But Google has their own box+map at the very top.
Google's position is that people don't want
google search to turn up sites where users would have to search again;
they just want an answer. And Yelp has been accused of loading up the bad
reviews for businesses which refuse to buy Yelp ads.
For more, see nytimes.com/2017/07/01/technology/yelp-google-european-union-antitrust.html.
Chrome v Firefox
In a series of twitter posts, Johnathan
Nightingale describes how Google put the muscle on Firefox (twitter.com/johnath/status/1116871231792455686?lang=en).
When the Firefox team started working with Google, there was no Chrome.
Facebook is probably the best example here of a company that might
qualify as a "natural" monopoly: its business works best for its users
when everyone is in. If some of your friends were on MySpace, some were on
Friendster, some were on LinkedIn and some were on Google+, you'd have a
lot of work to do to keep up with everyone. In this, Facebook is a little
like a utility.
Still, Facebook is large, and as such it attracts lots of interest today
in antitrust restraints. For the core facebook.com, it's hard to envision
a breakup proposal, or even a data-sharing proposal with competitors. But
Facebook has been acquiring other social-media sites, like Instagram and
Whatsapp; there are regular suggestions that Facebook be required to spin
these off. There are also frequent regrets that Facebook was ever allowed
to buy them.
Facebook apparently sees Instagram as a major alternative to
facebook.com, popular with younger users. To Facebook, having to give up
instagram would be an existential threat.
Amazon is not a monopoly. Yet. But are they doing anticompetitive things?
"Predatory pricing" is charging less to drive your competitors out of
business, and then raising prices. Is that Amazon's strategy? See inthesetimes.com/article/21850/is-amazon-using-predatory-pricing-in-violation-of-antitrust-laws-monopoly.
The theory presented there, developed by Shaoul Sussman, is that Amazon is
using accounting tricks (like leasing everything, instead of buying) to
conceal the fact that it is underpricing the items it sells.
Amazon may also be trying to convert many of its own wholesalers to
becoming third-party Amazon Marketplace sellers. This eliminates Amazon's
risk, and effectively means that Amazon's costs become lower. There is an
alternative, slightly contradictory, theory of Amazon's competitive
advantage: they can put their own products (from their own wholesalers) in
the top position in Amazon search. Already, the Amazon brand is often seen
as the "easy choice" in an overwhelming sea of options. For discussion of
this second strategy, see propublica.org/article/amazons-new-competitive-advantage-putting-its-own-products-first.
The New York Times ran an article, nytimes.com/2019/06/23/technology/amazon-domination-bookstore-books.html,
suggesting that Amazon's bookstore -- which already is a de facto
monopoly -- can shed some light on Amazon's long-term strategy. Book
prices are not going up, but book sellers are under enormous pressure to
cut deals with Amazon because Amazon otherwise will do very little to
remove counterfeit versions of the book from its online store. Amazon
doesn't appear to be the source of the counterfeits, but they
will only act if the original publisher complains, putting the onus on
that publisher to police Amazon's content.
Amazon Prime introduces its own anticompetitive wrinkle. Who is going to
sign up for a Prime-style membership with some small competitor to Amazon?
Or even with a big competitor (eg walmart.com) to Amazon?
List-price Prime is $10/month ($120/year), which won't cover traditional
shipping charges for two orders a month. So Prime would appear to be
significantly underpriced, as in predatory pricing.
A similar argument applies to Amazon's strategy of offering to let you
provide a key, so they can deliver your stuff to the inside of your home.
It is hard to see how smaller competitors can match this, because you're
not likely to provide a door key to anyone else. Does that give Amazon an
unfair leg up?
Mostly, Amazon is seen as providing relatively lower prices for
consumers. Traditional antitrust theory requires proof of harm to
consumers, and amazon has always argued they reduce prices to
consumers. But in 2019 Amazon was charged with causing higher prices; see
In a letter sent to federal lawmakers,
an online merchant has accused Amazon.com Inc. of forcing him and
other sellers to use the company’s expensive logistics services,
which in turn forces them to raise prices for consumers.
But what value do you put on 2-day delivery?
To run an app on an iPhone, it pretty much has to be in the Apple App
Store. Apple's stated reason for this is security, and they have indeed
been quite successful at keeping malware and spyware off of iPhones. But
they charge 30% of an app's fees (special rules apply to continuing
subscriptions, like Spotify, and no fee is charged to free apps that sell
non-app merchandise, like Amazon).
(Google also has some restrictive app-store policies, and they also try
to keep malware out, though at the latter they have been much less
successful than Apple.)
Despite the price break for continuing subscriptions, Spotify is still mad
at Apple: see TimeToPlayFair.com.
Siri won't play Spotify content. Apple's rules make it very hard for Spotify
to offer its subscription plans directly to users. Finally, Apple has a
history of rejecting Spotify's app upgrades.
Apple responded to Spotify's TimeToPlayFair with a press release: apple.com/newsroom/2019/03/addressing-spotifys-claims,
in which they pointed out the 30% commission falls to 15% after the first
year. But, still, Apple's pricing model seems simply to ignore the needs
of Spotify. Apple could allow Spotify users to subscribe via credit card,
but they do not.
Apple is quite strict with app developers, and their code review is much
more rigorous than Google's for Android. The New York Times released an
Cracks Down on Apps That Fight iPhone Addiction", alleging that
Apple was pushing its own anti-online-addiction tools. But the
reality is more complex: many of the apps in question were quite invasive
Game vendor Epic Games, maker of Fortnite, got itself
kicked off the App Store for changing their rules on in-app purchases.
Their antitrust case against Apple wrapped up testimony in May 2021, with
Apple CEO Tim Cook as a witness.
On the one hand, the Apple App Store (the only way to get apps for an
iPhone) does add value, by doing some privacy and security
vetting. On the other hand, a 30% flat percentage means big apps do a heck
of a lot of subsidizing of the vetting of small apps. There's no real
reason to think that the difficulty of vetting an app varies much from app
to app, though larger apps might take more work.
Despite occasional rumblings from Microsoft and Apple, it would be
inconceivable for general-purpose-computer makers to restrict software
that can be run. Why are phones different? Make that "why are iPhones
Note that if Spotify or Epic could offer their content as a web
app, they would be home free. Apple couldn't touch them. So Apple's
insistence isn't quite the consistent policy it might seem.
Most game-console manufacturers do charge a fee to devs for game
publication. But this is a very specialized market: game consoles have to
be sold at nearly cost, or even lower, and game devs would have no
platform if it weren't for the console maker.
And there has been weird collateral fallout: at one point Apple ordered
Wordpress, a free app, to create non-free tiers so Apple
could get 30% of something. Then Apple backed off. Apple claimed
Wordpress had agreed to make changes, but that seems false: www.theverge.com/2020/8/22/21397424/apple-wordpress-apology-iap-free-ios-app.
Also, the CEO of Epic Games had apparently asked weeks before their big
in-app-purchase policy change for a break from the 30% rule. Apple said
no. See also nytimes.com/2020/08/25/technology/fortnite-creator-tim-sweeney-apple-google.html.
Antitrust law prohibits monopolies due to market coercion. Apple has a
monopoly on the iPhone app store. Is that even a "market"? Just what is
a market? Antitrust laws also prohibit "tying". If to buy an iPhone you
have to buy apps from Apple, is that tying? But it's not really buying
apps from Apple; it's that they get a 30% share.
Browsers are built on top a browser "engine". Chrome's is blink,
and Firefox's is gecko (or maybe quantum). Neither of
these are allowed by Apple on iPhones. So Firefox and Chome have to port
their browsers to run on top of Apple's engine, webkit.
Apple's official reason is security, but Apple's own Safari browser makes
it clear that Apple's security leaves something to be desired, both in
time to issue patches and in total vulnerabilities identified. One theory
is that this keeps out smaller browsers; another is that it makes all
browsers look as bad as Safari, so what's the point of switching. Finally,
all this puts iOS browsers at a severe disadvantage versus using Apple's
app tools, which then locks developers into Apple's 30% app-payment rule.
One question here is whether ISPs should be allowed to throttle content
from content providers that don't pay "fees". Is that antitrust? Or is it
all about The Free Market?
Alas, at the heart of Network Neutrality is the fact that it is cable
companies that bring most Americans their internet. So when Netflix or
Hulu or Google (as owner of YouTube) argue in favor of network neutrality,
the opposition is trying to get you to watch TV as cable TV rather than as
internet. If an ISP were to reduce customers' bandwidth for YouTube videos
because Google did not pay them a fee, that might be a pretty solid
example of Network un-Neutrality. But what if Comcast applies their
bandwidth cap to Netflix and Hulu, but not to their own TV Anywhere, which
is actually a cable product and not, technically, an internet