BUSINESS • Aug 03, 2020
Too BIG?? Too POWERFUL??
If haven’t heard the news lately, Last week, US congresses have summoned the “big 4” tech CEOs for anti-trust reasons and grilled them for around 6 hours.
To give you some background, Anti-trust laws are laws that can be enforced if big- monopolistic companies take part in anti-competitive behavior. When a company uses its power, unfairly, to kick the competition out of the market, it can be said an anti-competitive behavior. It has happened multiple times over the past 150 years. The most popular ones being cases against Standard Oil (1911)- heard of Rockefeller- and Microsoft (2001). In the Standard Oil case, it was broken down into 34 smaller companies. The surviving companies include ExxonMobil, Chevron, Texaco, BP. Unlike popular opinion, Anti-trust laws cannot be used if a company grows too powerful or for public interests.
The common anti-competitive behaviors include,
- Tying- Tying One product with another unrelated product
- Price fixing - the tacit agreement between companies to fix prices
- Dumping – Selling products or services at a loss to force a competitor out of business
- Absorption of competitors – Buying out competing companies to become an effective monopoly
Exclusive dealing- A company forcing a dealer not to deal with a competitor
And a few more too…
The odds are, you will have heard or seen or even experienced companies doing these things quite often but they are never implicated for an anti-trust infringement. The truth is that these anti-trust laws are not enforced very often. These laws are lax and enforced only in exceptional cases.
There is quite a huge dilemma in enforcing anti-trust laws. Enforcing Anti-trust too often compromises the free market system, which is the basis of capitalism, and not enforcing them also ends up compromising the free market.
Let me elaborate a bit more… The Merriam Webster defines capitalism as an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. When a government meddles in too often, it is not necessarily a capitalist state anymore, compromising the private decision-making power of the companies in their investments, production, and prices. If the Government doesn’t come in at all (laissez-faire), One company in a market usually comes out on top effectively becoming a monopoly and undermining capitalism by having a market without competition. It is a very tricky issue- One cannot go all out socialism or an all-out free market.
The complaints made on the “Big 4” are also quite menial ones in the grand scheme of things.
- Apple is accused of unfair censorship in its App Store. They were removing certain apps from the app store and integrating similar functionality in their OS itself.
- Google is accused of similar shenanigans in their play store and for lifting content from various sites, depriving them of income.
- Amazon was accused of willingly losing 200 million dollars (by under-pricing) to drive a competitor in the baby products market out of business and for similar other shenanigans.
- Facebook for their acquisition of WhatsApp and Instagram
If you ask me, these are perfectly legal things to do. Corporate competition is the modern battlefield. One has to do whatever it takes to win it because if you lose you will probably end up with nothing. It is a kill or be killed environment. To put it another way, If I were the CEO of one of the “Big 4”, I would have done the same thing, if not worse, the same as any businessman in the right mind. These are not evil decisions. A right analogy will be to the wild. Is a lion evil because it kills a zebra. It does to survive and maybe to thrive.
But I would be remiss if I were to not talk about the other side. The other side has an even stronger argument. I think it is not that what they are doing is wrong or unethical, they are not, but about the consequences. Take Google, they have built almost all the apps that you will ever need and offering them on the play store for download. Since Google controls every aspect of the business, a new start cannot even think about competing against a google product in the app store. The same can also be said about Apple, at least to an extent. I already have wrote an article about the power of Facebook and Google because of Data.
What Amazon is doing has even more terrible consequences. Amazon is probably the biggest “shop” that any supplier can supply to and they buy a lot. So, the law of supply and demand allows them to buy at much lower costs than a regular shop. Just because of their scale, they can always undercut any shop and drive them all out of business. Right now, the small business dream is vanishing because of big companies like Amazon. Most of you will know at least one person, who came from a village, worked in shops, then started a shop and became wealthy after years of toil. The next generation will not know this.
Its not just the small business dream which is going away, soon the job dream might be too. Here is the thing, only the lean and most efficient companies survive- meaning accomplishing jobs with least number of people in the least time- and since there is going to be few huge companies instead of a lot of smaller companies and the human population is also ever-increasing, the consequence of all this is reduced job market. Already a lot of countries are started to ponder “Universal basic income”. If that’s the only way forward, then what is the point in living for the rest of the people.
I think the right way to think about the issue at this time (At least for me) is to think as a citizen and not as a capitalist. When billions of people are dependant on private organizations, when they are more powerful than several nations combined, it’s way too big. Take a hypothetical situation, if Amazon decides to enter the food delivery business, they can do it overnight and possibly make Swiggy go bankrupt within a year- unless of course, Swiggy themselves engaged in anti-competitive behavior by forcing their suppliers to exclusive dealing. Not that they will do it, they can do it. No company should hold that kind of leverage, that kind of power. Maybe it is time to break them up.