Yesterday’s DOJ announcement was in line with what has been known previously from publicly available sources (and that the market should, therefore, have known):
- -The press release quotes Assistant Attorney General Makan Delrahim of the Antitrust Division from his 6/11/19 speech in Tel Aviv.
- -The subtitle of the DOJ release was “Review Focuses on Practices That Create or Maintain Structural Impediments to Greater Competition and User Benefits”.
- -The text was predictably pointed in its implied criticism of the status quo: “The Department’s review will consider the widespread concerns that consumers, businesses and entrepreneurs have expressed about search, social media, and some retail services online.”
- -Assistant AG Delrahim added: “Without the discipline of meaningful market-based competition, digital platforms may act in ways that are not responsive to consumer demands.”
Since there appears to be a lacuna between what the market has discounted and where the DOJ is going with all this, three points from the Delrahim Tel Aviv speech:
#1: Achieving monopoly status through competition is OK, but keeping it through defensive actions that have “no economic sense” is most certainly not.
A powerful company with a large cash balance cannot, for example, simply buy up a promising competitor. That was one crux of the case to break up Standard Oil in the early 1900s, but it sounds an awful lot like Facebook/Instagram today.
#2: Network effects may deliver value to consumers in the form of innovation, price and performance, but if they also hurt competition then the DOJ will act.
AT&T, broken up in 1982, is the historical case study here. Is Amazon the 21st century equivalent? Or how about Apple or Google’s app stores? Neither is a monopoly by any definition, but the DOJ clearly thinks their position on the commanding heights of technological innovation makes them worth a look.
#3: Free is no excuse. In 1998 the DOJ filed a lawsuit against Microsoft for forcing computer manufacturers to bundle Internet Explorer with the company’s operating system.
It cost consumers nothing, but it put competitors in the browser space at a real disadvantage. Most of what Google offers consumers is absolutely free, but its dominant share of search and online advertising clearly troubles the Justice Department.
You can read Asst AG Delrahim’s full speech here: https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-antitrust-new-frontiers
Summing up: today’s DOJ announcement feels like a Churchill-ian “end of the beginning” moment, one where we now know that the tide of government action against Big Tech is certain to rise. The good news for Tech investors is that this move has been so well telegraphed that these companies have had ample time to plan both their defense and game out what happens if the US government takes any real action. Headline risk, however, clearly remains.