Pro’s and Cons of the FTC Task Force on Anti-Trust

Some interesting news hit yesterday about the FTC putting together a task force to more deeply look at issues of anti-trust in America. Part of the focus will be on past mergers which were approved and whether or not regulations should come down on companies where these mergers should not have been approved.

This is a tricky issue. On the one hand, we certainly need consumer protections to keep a company from gaining a true monopoly and in the course hurting competition and consumer choice. On the other hand, governments have abused this power and frequently brought unnecessary regulations or fines to make some money for their branch. Given settlements are so frequent, and it seems like easy money without having to go through the entire trial process at times.

Weighing the pros and cons is tricky, but we are in an interesting era where companies have grown to acquire significant market power, and there is no doubt a significant portion of market power is in the hands of the few, not the many. But, there are two angles worth looking at to add to the context of this conversation.

Focusing on Being the Best
What I’ve found interesting from observing the industry over the past 20 years is how some companies have grown to dominance in their market not by being shady, or with a monopolistic goal in mind but by superior focus and execution. Amazon, for example, a company mentioned in the WSJ article as a concern from this FTC task force, was laser-focused on E-commerce and everything pertaining to excellence in E-commerce. Amazon, for the moment, has a monopoly by definition (north of 50% market share), but they rose to this position because they were/are the best at what they do. If your competition is incompetent, or in most cases, simply focused on other priorities, it’s hard to see why a company like Amazon (when it comes to E-commerce) should be penalized for a superior focus and execution. I loosely call this an accidental monopoly.

There is a range of examples where simply being the best, and a focused team out executing their competition leads to an accidental monopoly. Intel is another example, as they have north of 90% market share in servers and north of 80% share of PCs. Companies should not be penalized by being the best, and even the FTC acknowledges this fact. Here is a quote from their page on Monopolization Defined “Obtaining a monopoly by superior products, innovation, or business acumen is legal; however, the same result achieved by exclusionary or predatory acts may raise antitrust concerns.”

It is understood that market share alone is not the basis to raise monopoly concerns. Perhaps the most crucial point is also found in this point from the FTC’s Monopolization definition. “Courts do not require a literal monopoly before applying rules for single-firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long term ability to raise price or exclude competitors.”

Again, it all comes down to definition and interpretation. Companies like Amazon, even Google, and Facebook which has all been mentioned as a part of this new task force, haven’t necessarily acted in a way or abused their market dominance in a way that cleanly fits a definition of abuse or excluding competition. But my worry if this task force gets aggressive is that no company is safe–Even Apple.

Monopolies Murky Waters
I wrote last month about my time in the courtroom observing the FTC trial vs. Qualcomm. Honestly, from what I saw from the FTC’s strategy, I was worried then about a lot of tech companies.

The FTC brought the case against Qualcomm by only focusing on an extremely narrow definition of a segment of the smartphone modem market. As well as only focusing on a specific time frame where they felt Qualcomm abused their market dominance. Whether I’m right or wrong to worry about this tactic, it seemed odd to limit the scope of the case so heavily to a segment of the market and only a specific timeframe. But, the courts allowed the FTC to proceed, feeling they had a compelling enough case to proceed.

Having seen this take place, and following the FTC’s tactics throughout the trial, the point was solidified in my mind that no one is safe. Let’s look at Apple for a moment.

Firstly, the FTC can define market power by the long term ability to raise prices. Has Apple raised the price of its iPhones regularly? Yes. What’s a bit more concerning was if the FTC could bring a case against Qualcomm and focus ONLY on a segment of the market, the market for premium phones, then the FTC could similarly come at Apple. Apple owns roughly 80% of the global market for premium smartphones (defined as devices costing more than $500). So from both a market share of a segment and the ability to increase price argument, the FTC could investigate Apple using both of the same tactics they brought against Qualcomm.

Similarly, the FTC argued that Qualcomm’s dominance granted them leverage which they used against customers, partners, and component suppliers. Honestly, the same argument can be made against Apple as the leverage they have because of their dominance in the premium smartphone market in their negotiations with component suppliers.

I don’t mention these things to say the FTC will come after Apple, only that as I studied this trial with the FTC and Qualcomm, I saw many similar tactics used by the FTC could be used against Apple and many other companies.

Certainly, the hardest part of any antitrust trial is to prove harm to competition. Everyone can argue they have competitors, and this is generally always going to be true. But if the FTC succeeds in using a much more narrow definition of a monopoly and can use a monopolistic argument against a segment of an entire market, then I think a lot of companies need to worry.