Antitrust Issues and the Web

The antitrust case against Microsoft in the late nineties showed how quickly and efficiently a monopoly, owning what was essentially a network protected by intellectual property rights, could abuse (although some including myself would simply say use) its power to expand into and eventually dominate related but distinct industries. Whether one believes the Sherman Act is economically sensible, there is no denying that Microsoft was in such a position to abuse its monopoly power that even today, over a decade since the initial case was decided, new antitrust claims are still being brought.[1]

What is interesting is that today’s internet companies arguably hold more monopoly power and flaunt it more than Microsoft could have dreamed of but are only beginning to come under antitrust scrutiny.[2] Amazon for example has 80% of the online book market[3], Google has roughly two thirds of the search market[4], and Facebook has 95% of the market for social websites.[5] Both Google and Amazon suggest that we should not worry about their monopolies, since their competitors are just “a click away” and that we should not be worried about switching costs. This point is debatable. While I am not claiming that the Federal government should necessarily be investigating these companies for unfair behavior, the fact is that they wield enormous power and are not afraid to use it to secure profits, make political statements[6], and are capable of stopping the world economy in its tracks.[7] Microsoft would have never dreamed of telling the Federal government that if they didn’t drop their lawsuit, it would discontinue supporting Windows and Office on government computers, Amazon did just this when it threated to drop affiliates in states that add on online sales tax. While antitrust laws were used in the past to protect the consumer, perhaps they will need to be used in the future to protect the government itself.

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[1]http://www.bizjournals.com/seattle/news/2011/12/20/microsoft-novell-lacks-evidence-in.html;
http://www.gamasutra.com/view/news/39471/Xbox_360_memory_card_antitrust_suit_gets_settled_out_of_court.php

[2] http://www.forbes.com/sites/ericsavitz/2011/12/19/sens-kohl-lee-seek-ftc-antitrust-probe-on-google/

[3] http://frontofstore.org/2011/03/09/amazons-share-of-the-online-market/

[4] http://blog.timesunion.com/seo/watch-out-yahoo-here-comes-bing/462/

[5] http://www.allfacebook.com/facebook-market-share-2011-12

[6] http://www.forbes.com/sites/janetnovack/2011/03/10/illinois-governor-signs-amazon-internet-sales-tax-law/
[7] http://matzav.com/top-internet-sites-mull-blackout-to-fight-web-censor-bill