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Ineffectiveness of Antitrust Laws

Introduction

Business laws are formulated to regulate the behavior of firms across all industries. While some are focused on protecting consumers from corporate malpractices, other regulations seek to safeguard other businesses. examples include antitrust laws that seek to ensure that large companies do not monopolize industries. Recently, the case of Facebook, one of the world’s largest social media companies, raised questions on how antitrust laws work.

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While some observers believe the laws are inadequate, others blame the application and interpretation by the courts. Additionally, the fact that mergers continue to take place means that entities are not entirely troubled by antitrust laws. The argument is that mergers consolidate market power, which eventually gives them monopolistic powers. This reflective paper explores the current problems with antitrust laws using such examples as the case of Facebook and proposes potential solutions.

Issue/Problem

The essence of antitrust laws is to undermine anti-competitive practices by dominant companies. The necessity of antitrust laws has been explained by Baker (2019) using the example of craft brewers. In this example, beer isles seem to offer consumers endless and overwhelming choices of brands. However, such companies as Miller and Budweiser control several brands and sell approximately three-quarters of the total beers purchased in the US market. With this example, it becomes apparent that monopolistic behavior can emanate from companies controlling more than one brand of the same product.

The illustration further expresses that there may be several smaller firms but their expansion becomes too expensive, which makes them remain small. Therefore, their sizes make it impossible for them to offset the market power of large businesses. An important point to make is that powerful entities continue to exist even with the existence of antitrust laws. Therefore, the main question for observers is what it would take for these laws to achieve their objective.

As expressed earlier, there exist many large companies with market power despite the presence of antitrust laws. According to Baker (2019), the United States government is institutionally committed to enforcing antitrust laws. The country’s judiciary has successfully overseen multiple cases, for example, the lysine cartel litigation that resulted in a $100 million criminal fine. With such punitive measures, it can be assumed that anti-competitive activities would cease as businesses fear the fines and other punishments. However, the country has also allowed such businesses s Facebook to become too big such that they have immense market power.

The case of Facebook has been explored by Srinivasan (2019), who focuses on the company’s monopoly over user data. Before Facebook grew in size, it faced considerable competition from other social media powers. At the time, Facebook’s collection of user data was done only on the platform. As the company expanded, it acquired several other platforms and websites through which it now gathers user data. Surveillance has been equated to influence and Facebook’s use of personal data becomes questionable.

Facebook surveillance is a controversial subject because social media platforms are supposed to offer users privacy. However, the fact that Facebook can continue to collect user data to use in advertising illustrates how businesses abuse their market power. These activities also highlight why antitrust laws were established and the continued emergence of businesses with market power continues to highlight the failures of the implementation. Several arguments have been put forward to explain why antitrust remains ineffective, one of which is the internationalization and the growing influence of foreign businesses.

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Such a position has been presented by Bradford and Chilton (2019), who argues that the regulators believe that foreign businesses will be adequate in offsetting the market power of the dominant firms. Assuming this was true, then Facebook would not have monopolistic tendencies with WeChat and TikTok offering the competition. However, considering that Facebook owns other platforms, including Facebook Messenger, WhatsApp, and Instagram, the company can effectively exercise its power.

Internationalization is not the only wrongful assumption held by the enforcers of the antitrust laws. According to Vaheesan (2020), two other assumptions are tough mergers and horizontal collusion. First, the courts presume that mergers tend to advance or fail to threaten consumer welfare. The reason why this is considered a mistake is that Facebook used a similar approach to gather market power and use all the acquired businesses to gather user data.

Therefore, the court’s presumption means that the enforcers will be paying inadequate attention to businesses that are actively amassing market power. Second, courts and enforcers believe that horizontal collusion that involves big and small firms is the main evil that antitrust laws are meant to eliminate. The horizontal collusion can be equated to the formation of cartels because more than one business gather and make arrangements on how to jointly control certain aspects of the markets.

However, mergers are not perceived similarly, which means that large businesses can purchase smaller ones to control their brands, which leads back to the formation of monopolies. The Case of Facebook is similar to the example of the breweries given by Baker (2019) in that Facebook controls such platforms as WhatsApp, Instagram, and Messenger, some of the most popular sites with billions of users. Therefore, the two assumptions have allowed a monopoly to emerge and only act when the company has already gained control. Vaheesan (2020) argues that current antitrust laws allow consolidation to take place while remaining opposed to cooperation.

Therefore, a question of what market power is and whether there are legal ways of achieving it arises and needs to be addressed. Loureiro (2019) argues that the policy of antitrust is supposed to protect the welfare of the consumer and that this objective is being undermined by the Supreme Court’s recent interpretations. The problem seemingly lies with the enforcement because proper interpretation and application should deter the rise of monopolies.

The issue of antitrust laws is important because businesses need to operate in a conducive environment and consumer welfare needs to be protected. Vaheesan (2020) argues that antitrust laws are formulated to tame both the political and economic power of companies. Powerful businesses can influence policy at the national level to achieve conditions that favor them more than their competitors. Anticompetitive practices allow businesses to engage in many malpractices, including overpricing and substandard quality of products and services, competition is deemed as the effective control mechanism for such malpractices because conscious consumers can always select the best alternatives in the market. therefore, the consumers are left exposed to the power and influence of powerful entities.

Smaller firms find it hard to remain afloat in the markets because are continuously edged out. The importance of antitrust laws is validated by its objectives but for it to work then a complete overhaul of the philosophical underpinnings would be necessary.

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Possible solutions

Searching for potential solutions to a problem requires that the root cause of the problem be understood and addressed. In this case, the source of the issue is that the courts and enforcers have adopted an interpretation and used assumptions that have proven to be mistaken. As mentioned earlier, such scholars as Vaheesan (2020) believe that a complete rethinking of the philosophy behind antitrust laws should help make antitrust laws more effective. In this case, it is important to express that many of the solutions go against the principles of a free market where the role of government is minimal. However, the formation of monopolies and businesses with great market power means that the market mechanisms have failed, which validates government intervention. The three possible solutions discussed in this section are a change in philosophy, limiting mergers and acquisitions, and the application of special taxes and fines.

Change in Philosophy

A change in philosophy should form the foundation on which all problems with the current interpretation and application of antitrust laws will be addressed. Such scholars as Loureiro (2019) highlight the principle of effective vindication, which holds that the interpretation of the principle is the main determinant of effective vindication. The call for a rethink of the philosophical underpinning of the antitrust laws has been made by Vaheesan (2020), who believes that wrong interpretation is to blame for the ineffectiveness. In rethinking the philosophy, critical questions should be addressed regarding what exactly needs to be addressed.

The main objective is to protect consumer welfare, which is also the main aspect monitored by courts and enforcers. If this has been agreed upon, then the next critical issue becomes how to define the construct of consumer welfare. Arguably, consumers are affected by such practices as prices and other externalities from business practices. Such aspects as sustainability and privacy rights should all form part of consumer wellbeing.

Market power and control in industries is a concept that is inherently rejected by antitrust principles. Therefore, a clarification of what comprises market power and how power is gained should be made. In this case, two ways are apparent as described by Vaheesan (2020): cooperation and consolidation. The latter is tolerated while the former is vehemently deterred even though both approaches have similar outcomes. It is recommended that the current privilege given to consolidation should be eliminated and the focus turned more towards the accumulation of power rather than the means.

Limiting mergers and Acquisition

The first solution has recommended that a rethink of the idea of market power be accomplished and the consolidation of power given the same treatment and cooperation. In this case, one of the immediate solutions that can be embedded into the formulation of the antitrust policy of the limitation of mergers and acquisitions. Baker (2019) argues that the current application of antitrust laws offers inadequate deterrence to anticompetitive mergers. Acquisition of firms tends to systematically exaggerate efficiencies depicted in their deals, which explains why many harmful mergers between rivals take place.

Additionally, merging firms tend to justify their pro-competitive nature, which is usually accepted by enforcers. The presence of other businesses in the same market does not indicate that a merger accepts competition. Therefore, strict stipulations on how and what mergers are acceptable by law should be made to make sure that acquisitions do not offer a disproportionate edge to the merging firms at the expense of the competitors.

Special Taxes and Fines

The current punitive measures under antitrust laws are inherently ineffective in deterring firms from accumulating market power. Therefore, policymakers should devise new approaches that can deter certain practices.

The case of Facebook is referenced as an example because it is one of the most recent and where the focus has been on the malpractices involving user data. Monopoly power does not necessarily manifest itself in overpricing but it can also be visible in reducing the quality. This is the problem illustrated by Facebook in that gathering user data undermines privacy, which is a violation that social media is not supposed to make. Special taxes and fines should be devised such that the companies will be fined every time malpractice is discovered. Incremental fines mean that repeated mistakes can be avoided as they can become too costly for a business. Regarding special taxes, the policy should ensure that all profits above the normal are effectively taxed as a control mechanism. For example, Facebook can be subjected to taxes for all sales and use of user data, alongside ordinary corporate taxes.

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Best Alternative

From the description of the problem and its root causes, it can be argued that the best alternative is the overhaul of the philosophical pillars of antitrust laws. It has been explained above that changing philosophy could address most if not all of the problems and the current ineffectiveness would be eliminated. Consider, for example, that consolidation of market power was treated the same way as cooperation. In such a scenario, one can argue that the enforcers would be closely monitoring and deterring those businesses engaging in activities deemed to be power consolidation. Facebook could not have been allowed to purchase WhatsApp and Instagram or other platforms that the firm has acquired. Therefore, the market today would be comprising Facebook in competition with these two brands, in addition to all other social media platforms.

Additionally, each of the businesses bought by Facebook had different approaches to user privacy and the collection of user data. Such a case is made by Zingales (2017), who argues that WhatsApp’s ‘no ad policy’ was updated after its acquisition to allow the sale of user data which was not allowed before. In other words, a change in philosophy discourages companies from having control over multiple brands, which works against the competition. Arguably, WhatsApp could be the main competitor to Facebook due to privacy protection, a consumer benefit eliminated because the consolidation is allowed.

Conclusion

The ineffectiveness of antitrust laws in monitoring the formation of monopolies is a serious problem in business law. Using the case of Facebook for illustration, this paper has established that the enforcers have made grave mistakes in interpreting and applying the policy. Examples include the assumptions regarding the merger and horizontal collusion, which have allowed monopolies to form. Three solutions have been proposed: rethinking the philosophy, limiting mergers and acquisitions, and use of special taxes and fines. Of these three recommendations, the best choice is the overhaul of the philosophy because of the implications it would have on the policy itself. With new interpretations of the key principles, many powerful businesses would not exist and competition would prevail.

References

Baker, J. (2019). The antitrust paradigm: Restoring a competitive economy. Harvard University Press.

Bradford, A., & Chilton, A. (2019). Trade openness and antitrust law. Journal of Law and Economics, 62, 29-65. Web.

Loureiro, R. (2019). Ineffective vindication of antitrust rights. University of Pennsylvania Journal of Business Law, 24(4), 978-1004.

Srinivasan, D. (2019). The antitrust case against Facebook: A monopolist’s journey towards pervasive surveillance in spite of consumers’ preference for privacy. Berkeley Business Law Journal, 16(1).

Vaheesan, S. (2020). Privileging consolidation and proscribing cooperation: The perversity of contemporary antitrust law. Journal of Law and Political Economy, 1(1), 28-45. Web.

Zingales, N. (2017). Between a rock and two hard places: WhatsApp at the crossroad of competition, data protection and consumer law. Computer Law & Security Review, 33(4), 553-558. Web.

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