Special Edition: Understanding Antitrust - Part 3 - Market Definition, Dominance, The Future Past

A gaming juggernaut, the most valuable company in history, & a cheeky 1984 ad with livestream in a video game - all the makings of an Epic tech lawsuit. Part 3 of multi-part series on Antitrust.

Hi All, Aadil here. This is the final essay in a multi-part series on educating myself on antitrust laws within United States. It has been an eye opening road trip for me and definitely has left me with more questions than answers. Hopefully, this was educational for you as well. I will be keeping an eye on the Apple v. Epic Games lawsuit and share things out as they happen. For what I am hoping from this legal fight, see my Final Thoughts and why this all matters for technology leaders.


1.

Lets focus on the basic principles. Most antitrust laws are based on the notion of a “market”. Without a well defined constraint or boundary, it is hard to know when to enforce the laws, when price is being fixed, when market incumbents are playing unfair, etc.

When Big Tech Goes To Washington happened at the end of July, my hopes were that the lawmakers would focus their questioning on arriving at a formula for redefining market dominance and market monopolies.

Alas, too much to expect from Congress these days (Dems complained about companies making too much money and too big to cut, Republicans cried wolf about bias against conservative voices - link).

Each of the CEOs spent an enormous amount of time pushing forward humble notions of facing stiff competition within their own market segments, garage filled origin stories thus no where near being even considered monopolies.

The four (Google, Facebook, Amazon, Apple) companies represented at Wednesday’s hearings, along with Microsoft, have collectively bought 720 companies over the last 30 years, according to testimony from the American Antitrust Institute. Source: Washington Post

Overtime, the laws, in favor of free market principles, have been hollowed out. This left an opening for modern Corporate Strategists, armed with a vernacular to shed any suspicion of monopolistic ambitions (“network effect”, “vertical integration”, “free services”, “building community”, “supply chain optimization”), to create behemoths larger than the antitrust laws originally intended to fight.

More than the Big Tech hearing, the recent Apple v Epic Games, gives me hope that we could potentially arrive at at least a new broader definition of what a “market” is and how to ascertain, empirically, a dominance of said market may appear. This is better than saying big tech is too big, lets break up big tech.

Surprisingly, we have been at this junction before. No, not the 2001 United States v. Microsoft about the infamous Internet Explorer and Microsoft OS technical & legal contractual constraints on Intel machines antitrust lawsuit.

For Apple v Epic Games, 1948 United States v. Paramount Pictures Inc is a better case law to review. Why?

Ultimately, its about Vertical Integration - a microeconomics and management concept of companies owning their own supply chain.

Here are the similarities:

  • Major film studios owned their own movie theatres (aka App Stores).

  • Although dominant, the Studios only owned 17% of the theathres in the United States (aka Apple’s counter claim to Epic that they are not the dominant player in the smartphone space).

  • The Studios had on staff writers, production crews, directors, actors, producers, owned the entire supply chain around film production, processing, and marketing (aka Apple’s own Apps competing with 3rd party developers).

  • Studio’s via various mechanisms would play would give their own productions more prominent space in their theatres (aka Apple’s free App’s taking top spots thus stamping out competition).

What makes this Apple v Epic Games different from Microsoft Case is the active effort by then Microsoft to stamp out competitions; this is a direct violation of the Sherman Act. This is not the case here. It is true that Apple is not the dominant leader in the smartphone space but within the smartphone industry and iOS as an operating system, yes, they own that space and in fact are the only player - Vertical Integration.

Ultimately, what is on trial is how much vertical integration is acceptable before it becomes monopolistic against your ownership of a certain market segment.

Final Thoughts

Here is my hope, taking a page from another debate about anti-competitive behavior - gerrymandering, a formula or some guidelines from the courts on how to formulate what is a market in modern Information Age terms, and then determining at what point “network effects” are masquerading as monopolistic anti-competitive behavior.

I have no hopes that Congress is either smart enough, motivated enough, or cares enough beyond sound bites and free speech bias to properly tackle address and improve the antitrust laws for a modern age. So, as always, we look to the courts to answer the tough questions for us.

How does this all tie to my thesis for this newsletter?

European’s realized that without a concentrated effort around developing better laws to manage competition within the tech space, things will remain murky and get ugly. See: GDPR and e-Privacy Directive.

As modern tech leaders, we need to ensure that we build systems with flexibility and room to grow to accommodate potential laws not yet written. At the same time, it will get harder for M&A operators within the technology space as laws do come into effect. This why understanding the history, evolution, and revolution of antitrust laws is key to future plays.

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