The European Union on Monday announced it was launching probes into the practices of Apple, Alphabet, and Meta, aligning with last week’s antitrust suit against Apple by the U.S. Justice Department. It is the latest in the Biden administration’s moves against dominant technology companies.
“We have seen the temptation to flout the law,” said Margrethe Vestager, an executive vice president of the European Commission, which proposes and enforces E.U. laws.
Why We Wrote This
After a decades-long hiatus in antitrust cases against Big Tech, the European Union, aligning with the US, is moving to protect consumers from market dominators, including Apple, Alphabet, and Meta.
But the approaches to remedying such problems differ dramatically.
The E.U. has passed laws and set up a special agency to regulate dominant digital platforms, says Fiona Scott Morton, an economics professor at the Yale School of Management. “When you do that … you have faster resolution of these kinds of problems.”
In the United States, the courts determine remedies for monopolistic behavior. After a decades-long hiatus in antitrust cases against Big Tech, the Federal Trade Commission and the Justice Department have renewed a push to protect consumers.
The U.S. approach can yield big results. In 1982, a federal judge broke AT&T’s telephone monopoly into separate companies. But a 1998 antitrust suit against Microsoft produced mixed results. With Apple, it’s not clear that courts will find a monopoly there.
Regulators are moving to rein in Big Tech on both sides of the Atlantic.
The European Union on Monday announced probes into the practices of Apple, Alphabet, and Meta, aligning with the U.S. Justice Department’s recent antitrust suit against Apple. It’s the latest in the Biden administration’s moves to level the playing field for technology companies and consumers.
“We have seen the temptation to flout the law,” said Margrethe Vestager, an executive vice president of the European Commission, which proposes E.U. legislation and enforces E.U. laws.
Why We Wrote This
After a decades-long hiatus in antitrust cases against Big Tech, the European Union, aligning with the US, is moving to protect consumers from market dominators, including Apple, Alphabet, and Meta.
But the approaches to remedying such problems differ dramatically. There’s an open debate about which one will produce the best results in the long run.
In Europe, the E.U. has passed laws and set up a special agency to regulate dominant digital platforms, says Fiona Scott Morton, an economics professor at the Yale School of Management. “When you do that … you have faster resolution of these kinds of problems.”
In the United States, the courts determine the remedies for monopolistic behavior. After a decades-long hiatus in antitrust cases against Big Tech, the Federal Trade Commission and the Justice Department under the Biden administration have renewed a push to protect consumers from companies they consider potentially monopolistic, including Alphabet, Amazon and Meta.
The U.S. approach can produce big results. In 1982, a federal judge famously broke AT&T’s telephone monopoly into separate companies. But the process is slow and not always successful. A 1998 antitrust suit against Microsoft produced mixed results. In the current case against Apple, it’s not clear that courts will find the company has a monopoly there.
In 1998, “Microsoft unambiguously controlled the operating system market back in the day, with 95% market share,’’ says Sruthi Thatchenkery, professor of strategy and business economics at Vanderbilt University’s management school. “Apple doesn’t have that.”
Instead, its iPhone has, by most estimates, about 65% of the US smartphone market and only 20% of the world market, with Samsung’s Android phone placing second in each market.
Some experts say the most dominant tech companies shouldn’t be broken up with antitrust suits, because they’re not monopolies in any traditional sense.
“They are, in fact, among the fastest-growing industries in the American economy,’’ says Herbert Hovenkamp, a professor at the University of Pennsylvania Law School and the Wharton School. “They’ve produced enormous benefits. They are actively engaged in research. … This whole idea that we should just go after Big Tech as a structural problem strikes me as wrong-headed.”
Instead, he says, the Justice Department should target specific infractions with narrower and easier-to-win injunctions.
The E.U.’s new Digital Markets Act, by contrast, doesn’t rely on market share to determine monopoly power. Instead, it identifies tech companies that have dominant control over a particular market, then creates remedies if those companies have taken unfair advantage of consumers or competitors. To comply with the law, Apple, beginning this month, is allowing app sellers in Europe to distribute their products on channels outside of its App Store. Similarly, Google is giving its European users a choice of mapping programs after a search, rather than automatically defaulting to Google Maps.
Virginia Mayo/AP
“The problem is not the sheer size of big tech,” Manuel Wörsdörfer, professor of management and computing ethics at Maine Business School, writes in an email. “It is this data control and ownership that allows tech companies to leverage their dominant and powerful market position across market segments.”
Five areas of focus
In Apple’s case, the Justice Department’s suit focuses on five areas where it says the company has abused its monopoly power with the iPhone.
So-called super and cloud-based apps integrate several functions in one piece of software, paralleling the ease of use of Apple’s ecosystem. Cloud-based apps, such as games, rely on Internet-based servers rather than a user’s smartphone, to do the heavy lifting. Quoting internal Apple communications, the Justice Department charges that the company feared both kinds of apps would diminish users’ reliance on the iPhone, and so it took steps to quash them.
The Justice Department also charges that Apple deliberately lessened the quality and security of cross-platform messaging so users would stick with iPhones rather than buy cheaper Android phones. For similar competitive reasons, the company limited functionality of third-party smartwatches so consumers would keep buying the Apple Watch, and inhibited the functionality of third-party digital wallets to keep people committed to the iPhone.
“There’s a natural incentive for [Apple] to look for ways to protect their profits,” says Andrew Ching, a marketing and economics professor at Johns Hopkins Carey Business School. The question, he adds, is whether the company’s practices have been “contrary to the total welfare for the economy, including consumers.”
Responding to the lawsuit, Apple says it has spent billions of dollars creating a superior, well-integrated ecosystem. It argues the system would be made worse by misguided government attempts to open it up. The Justice Department counters that the superior user experience is an illusion and that the smartphone experience would be more innovative and better with more competition.
Antitrust actions don’t always yield expected results. One study last year found that while the Microsoft judgment led to more innovation, patents, and R&D spending by Microsoft competitors, it did not lead to more profits for them. More competition often doesn’t lead to more profits, says Professor Thatchenkery of Vanderbilt, a coauthor of the study.
Microsoft also became more cautious about sharing development tools with other software companies.
On the other hand, Microsoft was slower to enter new businesses, which gave other companies, including Apple and upstart Google, an opening to enter and then dominate some of those businesses – an irony the Justice Department points out in its Apple lawsuit.
Similarly, the Biden administration may be trying to send a message.
“Even if [the administration] is not necessarily winning every case, … these Big Tech firms are being a bit more cautious in what they’re actually doing,” says Professor Thatchenkery.