Regulating Tech Monopolies: Different Industry, Same Fundamentals

By Nayeon Kim

Nayeon Kim is a freshman at the University of Pennsylvania.

Last April, Margrethe Vestager, the European Union’s antitrust chief, formally accused Google of manipulating search results in favor of its other businesses. For example, she argued that Google intentionally displayed its shopping site on the front when people searched for products, diverting traffic from the sites of its competitors. Although there could be some political motives behind the actions of European regulators, the existence of this conflict itself attests to the immense amount of power Google has over the online search market and informs us of how things may go wrong when a single company virtually dominates an industry.

Not only has Google faced antitrust investigations in Europe, but in the US as well; however, the US investigation did not ultimately result in a formal charge. In 2013, the Federal Trade Commission, or FTC, concluded its two-year investigation on whether Google violated any US antitrust regulations. The FTC stated that it would not file a lawsuit against Google because it could not find sufficient evidence of the company breaking the law. [1]

Referring to the 1890 Sherman Act, the FTC argued that although Google dominates the online search industry, it neither attains nor maintains its current position through monopolistic means. Especially concerning Google’s Universal Search, which shows Google’s products on top when the user searches for certain goods, the FTC found that this mechanism is primarily used to improve user experience, not to curb existing or nascent competition. [2] Although the FTC acknowledged that competitors could have been harmed by Universal Search, it characterized such outcomes as incidental to the purpose of best serving customers. However, the FTC still ordered Google to alter its business practices in other areas, including letting companies to remove brief descriptions of their products on Google’s search page and granting fair access to patented technologies for smartphones to its competitors.

Although the FTC declared that the core practices of Google are fair, there are many who disagree with the FTC’s decision. More importantly, the number of antitrust cases against big technology companies are likely to increase in the future. A fairly mature technology industry usually has one or at most two big players: Google for search, Facebook for social media, Uber for ride hailing, and so on. [3]

An industry is formed when a clever, enterprising person first conceives a business idea, and then many imitators emerge and try to make themselves the dominant player of the said  industry. After a while, the industry is usually dominated by one player and other companies die out, not because the dominant company intentionally blocked competition but because of various factors including the network effect and the virtuous cycle of more users leading to more data, which enables the company to provide better services to customers using that data, leading to even more users. Moreover, today most technology companies offer software that can be used free forever, which eliminates the need for customers to move on to the second-best product. [4] The environment in which big technology firms operate is conducive to forming what may appear to be monopolies that should be regulated.

Even though the industry the Sherman Act is trying to regulate today is drastically different from the industries that existed in 1890, the Sherman Act still provides a good framework for determining whether an action of a “monopoly power” in the market should be regulated. The Sherman Act does not regulate a company just because the company’s market share is significantly larger than that of its competitors. Instead, the law was originally intended and continues to be  interpreted to only punish companies that hinder fair competition. [5] The spirit of the law is to benefit consumers by encouraging healthy competition in the industry which motivates companies to innovate and deliver better products to their users. It seems that the technology giants are doing exactly that, since they are forced to constantly innovate because of intense competition in the technology industry in general and since they are providing their products for free to expand their user base and making money from capitalizing it. Actually, Google, certainly a giant company, may not be a “monopolist” as defined in the Sherman Act because the company is facing intense competition from other large players that are trying to establish their place in the future search industry. [6]

Competitors of industry-dominating technology firms may be tempted to accuse the giant on the grounds of being a monopolist. However, monopoly laws must serve two purposes at the same time: preserving the incentive to motivate and preventing companies from engaging in unfair practices. The Sherman Act is a reasonable attempt to balance these seemingly conflicting interests. In today’s fast-changing tech space, it would be better for companies to identify and develop new products for the future rather than clinging to political forces to regulate what the giants have done in the past.



[1] Gustin, Sam. “Google’s Federal Antitrust Deal Cheered by Some, Jeered by Others.” TIME, January 4, 2013.
http://business.time.com/2013/01/04/googles-federal-antitrust-deal-cheered-by-some-jeered-by-others/
[2] Federal Trade Commission. “Google Agrees to Change Its Business Practices to Resolve FTC Competition Concerns in the Markets for Devices Like Smart Phones, Games and Tablets, and in Online Search.”
https://www.ftc.gov/news-events/press-releases/2013/01/google-agrees-change-its-business-practices-resolve-ftc
[3] Malik, Om. “In Silicon Valley Now, It’s Almost Always Winner Takes All.” The New Yorker, December 30, 2015. http://www.newyorker.com/tech/elements/in-silicon-valley-now-its-almost-always-winner-takes-all
[4] Melnick, Lloyd. “Winner Takes It All.” lloydmelnick.com. https://lloydmelnick.com/2014/09/30/winner-takes-it-all/
[5] Federal Trade Commission. “Monopolization Defined.” https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/monopolization-defined
[6] Louis, Tristan. “Why an Antitrust Suit Against Google Will Fail.” Business Insider, October 15, 2012. http://www.businessinsider.com/why-antitrust-lawsuits-fail-2012-10

Photo Credit: Flickr User faungg

The opinions and views expressed through this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.