Over the past few decades, companies have focused on maximizing profit and decreasing competition. Top tech companies like Google, Microsoft, Facebook, Apple, Netflix, and Amazon have evaluations greater than the GDP of a majority of countries in the world. These companies abuse their power, and the government is unable to efficiently regulate their growth. Mergers and acquisitions have skyrocketed in the 21st century. They have become a tool for large companies to stifle competition and grow their market share. This can be a clear-cut way to approach growth but can easily turn into binge buying. In 2015 alone $5 trillion worth of deals transpired (Liner, 2016). Due to the volume of companies being bought or merged the Federal Trade Commission cannot keep up with all of the small companies being purchased, which makes it difficult to monitor how big tech companies are shaping markets (De Vynck & Zakrzewski, 2021). This is important because big tech companies hold a majority market share, which can result in a negative impact on consumers and commercial rivals. This essay will examine, from the economic lens, the impact of a high rate of mergers and acquisitions and competitive pricing in the technology industry and how regulators can effectively balance market power. My research question was, “What are the impacts of big tech companies using their power to control competition?”. While tech companies become more powerful, they act as monopolies in their competitive market by purchasing competitors, decreasing prices, and making it more difficult to penetrate markets.
One of the most prominent practices used to grow companies are mergers and acquisitions. Big tech companies are participating in a staggering number of mergers and acquisitions, and antitrust regulators cannot keep up. In September this year, “companies across all industries have sought to buy or merge with others worth at least $92 million — roughly 40 percent more than before the pandemic in 2019”(De Vynck & Zakrzewski, 2021). Regulators cannot monitor many of these purchases because they are not officially announced. This leads to abuse of corporate power in the tech industry where big tech companies can buy hundreds of small companies undisclosed. Currently, the Federal Trade Commission requires companies to disclose purchases over the threshold of $92 million. Even with this restriction, many deals would not be reported. For example, “Microsoft, Apple, Google, Facebook and Amazon together made 616 acquisitions from 2010 to 2019 that fell below that reporting threshold but were worth at least $1 million” (De Vynck & Zakrzewski, 2021). These acquisitions mean that tech companies can lessen competition before a potential substitute product can be offered. This phenomenon is described as “killer acquisitions” by Florian Ederer and Song Ma of Yale’s School of Management. Specifically, “killer acquisitions” result in the termination of upcoming cutting-edge companies (Ederer, 2021). Ultimately, this process negatively impacts the consumer because without competition there is less innovation and big tech companies have no incentives to decrease prices or increase the quality of their products. Facebook is an example of how a decrease in competition can lead to a decrease in quality in the form of privacy. When Facebook was in competition with Myspace it promised to not track private individual data. Later, when it was a market leader, Facebook began “recording users’ activity on third-party sites” (Srinivasan, 2019). Serial acquisitions allow big tech companies to grow their market share and determine competition. As a result, there is less privacy, higher prices, and it is more difficult for small companies to thrive.
References
Charrie, L. Q. and A. (2019, September 19). The Right Way to Regulate the Tech Industry. MIT Sloan Management Review. https://sloanreview.mit.edu/article/the-right-way-to-regulate-the-tech-industry/
De Vynck, G., & Zakrzewski, C. (2021). Tech giants quietly buy up dozens of companies a year. Regulators are finally noticing. Washington Post. https://www.washingtonpost.com/technology/2021/09/20/secret-tech-acquisitions-ftc/
Ederer, F. (2021). Does Big Tech Gobble Up Competitors? Yale Insights. https://insights.som.yale.edu/insights/does-big-tech-gobble-up-competitors
Elias, J. (2020, October 7). Google “overwhelmingly” dominates search market, antitrust committee states. CNBC. https://www.cnbc.com/2020/10/06/google-overwhelmingly-dominates-search-market-house-committee-finds.html
Ici, D. (2019). E-commerce in Million U.S. Dollars. In bigcommerce.com.
Novet, A. P., Jordan. (2020, October 7). Amazon bullies partners and vendors, says antitrust subcommittee. CNBC. https://www.cnbc.com/2020/10/06/amazon-bullies-partners-and-vendors-says-antitrust-subcommittee.html
Srinivasan, D. (2019, May 28). Opinion | Why Privacy Is an Antitrust Issue. The New York Times. https://www.nytimes.com/2019/05/28/opinion/privacy-antitrust-facebook.html