Big Tech Whines About Antitrust
Ooh, this is big, bigger than I imagined when I first noodled on writing about it. In short, tech industry opposes the recent resurgence in antitrust enforcement, and is attacking FTC Chair Lina Khan for her enforcement actions.
Why “resurgence”? Laws addressing monopolistic practices were enforced fairly rigorously until the Reagan presidency, but then enforced only in a lax manner until now. That period of laxity brackets the entire life cycle of Silicon Valley - semiconductors, software, PCs, gaming, AI, VR, you name it.
So from the industry’s perspective, renewed antitrust enforcement represents innovation and change. As you know, change always gores someone’s ox, and (I promise this will be the final metaphor for several paragraphs to come) innovation always gets the incumbents’ shorts in a knot.
Big tech is unhappy
Silicon Valley tech is accustomed to being the upstart innovator, challenging incumbent industries. But in the context we’re discussing, SV tech is the establishment, and is finding the role uncomfortable. Tech firms like AirBnB and Uber famously ignore the law when convenient for them, but this is not possible when it comes to corporate acquisitions because in many cases M&As must be approved by the DOJ Antitrust Division. When approval is not forthcoming, lengthy court battles may ensue.
(The Federal Trade Commission website says, “Both the FTC and the U.S. Department of Justice Antitrust Division enforce the federal antitrust laws. In some respects their authorities overlap, but in practice the two agencies complement each other.”)
What’s their beef?
Big Tech’s objections to renewed enforcement are as follows. 1) Bigger US firms are more productive than little ones, and by virtue of market power can better compete against big foreign firms; and 2) because these days most startup tech ventures find their liquidity events through acquisition (rather than IPOs), American entrepreneurship would suffer – i.e., there would be fewer startups – if big tech could not buy young companies with impunity.
Before we examine both objections, let’s look at what “competition” means. Every athlete knows it means testing oneself, or one’s team, against a number of strong opponents. It does not mean what some industry execs seem to think it means, which is “make sure we win.” In fact, when someone wins, the competition is over. Competition doesn’t mean winning; it means staying in the game, or staying near the top of the league. Its purposes are to better oneself, develop oneself further, and to bring glory and role models to home fans.
If there’s a strict legal definition of competition, which I doubt, it’s above my pay grade as a non-lawyer.
And, sorry about the beef metaphor.
Legal scholars and politicians debate…
… whether antitrust legislation’s purpose is to protect innovation (which happens more in small companies than in big ones) or to protect consumers (because economic theory says competition among many suppliers and vendors leads to lower consumer prices).
The two large grocery chains Kroger and Albertsons are currently planning to merge. The companies’ execs are trotting out the same b.s. we hear in every such planned deal: that combined buying would give them more leverage with suppliers and “bring lower prices to more customers,” allowing the combined companies “to better compete with massive retailers Walmart, Costco and Amazon.”
I challenge you to name one M&A that actually has led to lower prices. Everyone knows that faulty integration of two big companies’ systems, internal culture clashes, massive fees to the investment bankers, collusion to keep prices high, and poorer customer service mean that these mergers harm consumers.
I hope I don't have to mention bank and airline mergers in this regard. Those became “too big to fail,” took government bailouts at taxpayer expense, and then just continued their misbehavior.
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Antitrust law aims to enhance competitiveness of entire industries and of the economy as a whole – NOT to help an individual company (e.g., a combined Kroger-Albertson) to compete. In Spectrum Sports, Inc. v. McQuillan 506 U.S. 447 (1993) the Supreme Court said: “The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market (https://en.wikipedia.org/wiki/Sherman_Antitrust_Act).
And everyone knows Costco succeeds not because it's big, but because of its creative business model and unique management philosophy.
Knocking down Big Tech’s arguments
Three kinds of M&A have different natures: Two big companies may merge, with the probable consequences described above; A big one may buy a small one, which can be fine as long as the purpose is not to quash the small firm’s innovation in order to protect the big firm’s market position; Or two startups may merge so their complementary technologies and competences will improve their growth prospects.
Now as for Big Tech argument #1: Big organizations, research shows, are not more productive than smaller ones. (This is usually measured by output per person-hour.) And –?lawyers, help me here – the first antitrust law, the Sherman Act of 1890, aimed to curb anti-competitive practices in interstate transport. Not in foreign trade, much less in competing with China in electronics markets. By mentioning China, the tech firms are pandering to Congressional fears. They surely know it has nothing to do with antitrust law.
And their argument #2 appears just self-serving on the part of the VCs. The IPO market and other non-VC financing mechanisms are still available, and the app economy means teams can start viable ventures in garages at low cost with friends-and-family funding, no VCs needed. I’ve mentioned there’s no harm in a big firm honestly acquiring one small one. Problems could arise from big firms acquiring small ones en masse, like a bass in a school of minnows.
Once again, the job of the Antitrust Division is not to protect entrepreneurs or American entrepreneurship, at least not explicitly. Antitrust actions are taken against individual mergers. Acquiring small companies will not be banned; that would take an act of Congress.
In any case, a better use of law would be to protect startups against retribution from big companies when the startups refuse lopsided or offensive merger offers.
Where that leaves us
Kroger and Albertson feel the need to merge not because they’re too small, but because they’ve failed to innovate.
Sad but true, sometimes a new venture is purchased so the acquirer can make sure its innovation never sees the light of day. Probably this doesn’t happen often; research is needed to measure its frequency.
Decades of lax antitrust enforcement have led to market concentration in many sectors, further leading to devastation of neighborhoods once supported by small businesses, weakening of social relationships, huge faceless transnational corporations that leave mistreated customers with no recourse, and other harms you can name as well as I can. High time to re-start enforcement.
Lawyers must work out the prospective/retrospective thing. When FTC disapproves a merger, its grounds for doing so are necessarily somewhat speculative: The merger might have anti-competitive consequences. Businesses have seized on this point, in their criticism of the government. Yet, what’s FTC to do, wait to see the consequences, then attempt to un-do the merger? Not practical. The history of mergers and outcomes provide plenty of data for predicting outcomes. The real question is whether, in a particular action, a judge will find that evidence convincing.
For readers wanting a clean, crisp conclusion to this essay, here it is: In this matter, Big Tech is full of baloney.
NOTE: I’ve avoided footnotes and references here. All assertions can be checked easily with Google search.
AND NOTE: I’ve used “merger” and “M&A” above, but really there’s no such thing as a merger. One of the companies always ends up on top, the boss of the combined entity. So all such combinations are acquisitions. Viz., the search for a name for the combination of Daimler and Chrysler. As legend has it, the Daimler CEO said, “We’ll take the DAIM from Daimler, and the LER from Chrysler, that gives us DAIMLER.
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5 个月https://www.economist.com/business/2024/09/08/is-the-era-of-the-mega-deal-over