Wednesday, July 17, 2024

Is competition being locked out by Amazon and Google?

Do you remember the days when a telephone network was broken up because it excluded competing firms? Or when a famous court battle against Microsoft may have paved the way for Google’s subsequent rise? These were just some of the defining moments in corporate America that have shaped the current landscape of antitrust cases.

Today, two big cases could redefine the limits of monopolies in the internet age. On one hand, the Department of Justice has started its court battle against Google over the firm’s deals to obtain default status on phones and browsers. On the other hand, the Federal Trade Commission has sued Amazon for allegedly penalising third-party sellers that offered lower prices on other sites, among other harmful practices. In both cases, the government thinks the tech giants are so dominant that their attempts to preserve market power are suspect.

But what counts as anticompetitive behavior? Well, historically, practices that might be ignored for a startup have not been tolerated in a dominant firm. For example, Standard Oil was broken up in 1911, in part for striking deals with railroads that made it impossible for other oil firms to compete. Similarly, Microsoft was found to be problematic because it had over 90% of the market for operating systems on personal computers.

Fast forward to today, let’s take a look at the case against Google. The Department of Justice argues that Google’s deals create a barrier to entry for competitors, making it difficult for other search engines to gain a foothold. On the other hand, the case against Amazon is stronger, as sellers complain of being penalised for offering cheaper prices on other platforms. According to the Federal Trade Commission, Amazon has raised the cost of doing business on its platform.

Amazon denies all these allegations, and there is a chance that the case becomes a debate about how dominant the firm really is. But if that is the case, Amazon has plenty of options available to address the concerns raised by the regulators. In Europe, the company has made several concessions, including treating all sellers the same when granting access to the much sought-after Buy Box.

In conclusion, these cases have sparked a debate about what counts as anticompetitive behavior and how to address concerns about dominant firms. It remains to be seen how these cases will unfold, and what impact they will have on the future of corporate America. For more expert analysis of the biggest stories in economics, finance and markets, sign up for Money Talks, our weekly subscriber-only newsletter.

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