Why the FTC is Putting Big Tech's Purchase of Startups Under a Microscope
Following the appointment of Chairman Joseph Simons to the Federal Trade Commission (FTC), large tech companies including Google, Facebook, and Amazon should expect tougher enforcement against anti-competitive behavior. In recent years, the FTC has become increasingly concerned that these large tech companies may be violating antitrust law and limiting competition in the market by acquiring small startups or otherwise vertically integrating.
Simons’ appointment comes at a time when mega-mergers among technology companies are commonplace. For example, the District Court for the District of Columbia recently approved a deal in which AT&T acquired Time Warner for $85 billion. This came much to the disappointment of the Department of Justice, which had earlier sued to block the merger over consumer price increase concerns. (Sara Salinas, CNBC). Other notable examples include Microsoft’s acquisition of GitHub, an open-source code platform (Microsoft, Press Release), and Amazon’s acquisition of PillPack, an online pharmacy company (Ingrid Lunden, TechCrunch). Although acquisitions like these can increase competition and benefit consumers, some acquisitions may lead to higher prices, less innovation and fewer choices that ultimately hurt the market.
With Simons as Chairman, mega-mergers amongst technology companies may face increased opposition from the FTC. During a speech at the Georgetown Law Global Antitrust Enforcement Symposium, Simons indicated that he would lead the agency to more “vigorous enforcement” of antitrust laws. (Alexei Alexis, Bloomberg Law). During this speech, Simons highlighted “significant high-tech platforms” and “nascent competitors” as antitrust concerns the FTC would focus on:
“These types of transactions are particularly difficult . . . because the acquired firm is by definition not a full-fledged competitor, and the likely level of future competition with the acquiring firm often is not apparent.” (Joseph Simons, Prepared Remarks)
Simons further explained in his speech that his approach to antitrust was influenced by his exposure to the “Raising Rivals’ Cost” (RRC) approach to “analysis of vertical restraints and monopolization.” This framework approaches antitrust by considering that companies with significant market power can choose to impose additional costs on competitors for exclusionary purposes. For example, a company with lots of capital may lobby a regulatory agency to create greater regulations that would leave the company largely unaffected, while imposing higher operating costs for smaller competitors. Simons apparently views the acquisition of smaller tech startups as an attempt at this kind of exclusionary behavior, since large companies that are deeply vertically integrated can have much lower overall costs than competitors while still providing more services.
Large tech companies should have been on notice of these potential changes in antitrust enforcement since earlier this year. In February, for example, Simons made almost identical statements at a confirmation hearing before the Senate Commerce Committee. (Hamza Shaban, The Washington Post). More recently, President Donald Trump has also stated that Google, Facebook, and Amazon may be “a very antitrust situation” in the context of his repeated accusations that large tech companies — Google in particular — have been unfairly favoring liberal news outlets over their conservative counterparts. (Mickelthwait, Talev, and Jacobs, Bloomberg).
Although the exact degree of increased enforcement under a Trump-era FTC administration is unclear, it is likely that future attempts at vertical integration by large tech companies will face more frequent FTC opposition.