Reference no: EM133318716

Question:

In recent years, US tech companies have faced increased scrutiny in Washington over their size and
power. Despite the big tech firms in America being economically robust, seemingly more so than any
other sector, they are also more politically vulnerable. This potential vulnerability is present
regardless of the recent election result.
Both the Democrat and Republican parties are thinking critically about monopoly power and
antitrust issues, where 'antitrust' refers to the outlawing or control of oligopolistic collusion. Despite
the varied reasons across different parts of the political spectrum, the increased scrutiny over big
tech companies is bipartisan.
Rising monopoly power
Monopoly power occurs when a firm has a dominant position in the market. A pure monopoly is
when one firm has a 100% share of the market. A firm might be considered to have monopoly
power with more than a 25% market share.
If there is a rise in market concentration, it tends to hurt blue-collar workers, such as those
employed in factories, more than everyone else. Research, from the University of Chicago, studied

what happens to particular classes of workers when companies increasingly dominate a market and
have more power to raise prices. The study found that those workers that make things tend to be
left worse off, while the workers who sell, market or design things gain. When companies have more
pricing power, they make fewer products and sell each one for a higher profit margin. In that case,
it's far more valuable to a company to be an employee working in so-called expansionary positions,
such as marketing, than in production jobs, such as working on a factory line - because there's less
production to be done and more salesmanship.
Monopoly power under Trump Vs Biden
In February, President Trump and his economic team saw no need to rewrite the federal
government's antitrust rules, drawing a battle line with the Democrats on an issue that has
increasingly drawn the attention of economists, legal scholars and other academics. In their
annual Economic Report of the President , Mr. Trump and his advisers effectively dismissed research
that found large American companies increasingly dominate industries like telecommunications and
tech, stifling competition and hurting consumers. At the time the Trump administration contended
that studies demonstrating a rise in market concentration were flawed and that the rise of large
companies may not be a bad thing for consumers.

Concentration may be driven by economies of scale and scope that can lower costs for
consumers. Also, successful firms tend to grow, and it is important that antitrust
enforcement and competition policy not be used to punish firms for their competitive
success.
The Trump administration approved some high-profile corporate mergers, such as the merger of
Sprint and T-Mobile, while also trying to block others, such as AT&T's purchase of Time Warner. Mr.
Trump's advisers stated that agencies already had the tools they needed to evaluate mergers and
antitrust cases. It lamented that some Americans have come to hold the mistaken, simplistic view
that 'Big Is Bad.'
However, it is likely that such big firms, including the tech giants, would take a hit under the new
presidency. President-Elect Joe Biden has pledged to undo the tax cuts introduced by Trump and has
vowed to increase corporation tax from 21% to 28%. As part of these tax changes, he has suggested
the introduction of a minimum 15% tax for all companies with a revenue of over $100 million. This
has now been given the nickname of the 'Amazon Tax' and it is clear how it would impact on the big
the firms such as Amazon.
This is the opposite of what was probable if Trump were to have been re-elected. It was expected
that the US would continue along the path of deregulation and lower taxes for corporates and high-
income households, which would have been welcomed by the stock market. However, analysts
suggest that the tax changes under Biden would negatively affect the US tech sector, with some
analysts maintaining that the banking sector would also be hit.

Antitrust enforcement is often associated with the political left, but the current situation is not so
clear-cut. In the past, Silicon Valley has largely avoided any clashes with Washington, even when
European regulators have levied fines against the tech giants. European regulators have fined
Google a total of $9bn for anticompetitive practices. In 2018 Donald Trump attacked the EU
decisions. "I told you so! The European Union just slapped a Five Billion Dollar fine on one of our
great companies, Google," Trump tweeted . "They truly have taken advantage of the US, but not for
long!"
However, since then the mood has changed, with Trump and other conservatives joining liberals,
including senators Elizabeth Warren and Bernie Sanders, in attacking the dominance of tech firms,
including Amazon, Google, Facebook and others. While Democrats have largely stuck to criticising
the scale of big tech's dominance, Republicans, including Trump, have accused the major tech
companies of censoring conservative speech.
An antitrust subcommittee of the Democrat-controlled House Judiciary Committee released a 449-
page report excoriating the Big Four tech companies , Amazon, Facebook, Apple and Google-owner,
Alphabet, for what it calls systematic and continuing abuses of their monopoly power.
Recommendations from the report include ways to limit their power, force them out of certain areas
of business and even a break-up of some of them.
Democratic lawmakers working on the probe claim that these firms have too much power, and that
power must be reined in. But not all Republicans involved agreed with the recommendations. One
Republican congressman, Jim Jordan, dismissed the report as "partisan" and said it advanced "radical
proposals that would refashion antitrust law in the vision of the far left." However, others have said
they support many of the report's conclusions about the firms' anti-competitive tactics, but that
remedies proposed by Democrats go too far.
The US tech giants
Amazon is a leading example of the economic strength held by the tech giants. Amazon has
produced 12-month revenues of $321bn to October 2020, which in an increase from 2019 and 2018
revenues of $280bn and $233bn respectively. However, Amazon, along with the other big players
Apple, Facebook, Google parent Alphabet, and Microsoft, are facing increased government scrutiny.
The US Department of Justice has filed a lawsuit against Google for entrenching itself as the
dominant search engine through anti-competitive practices. Google's complex algorithms, software,
and custom-built servers helped make it into one of the world's richest and most-powerful
corporations. It currently dominates the online search market in the USA, accounting for around
80% of search queries. The lawsuit accuses the tech company of abusing its position to maintain an
illegal monopoly over search and search advertising. Facebook also faces an antitrust lawsuit from
the Federal Trade Commission. It is arguable that the US tech giants are so powerful that they may
accomplish the seemingly impossible and unite the two parties, at least on one policy - breaking
them up.

If it is correct that the tech giants' behaviour ultimately damages innovation and exacerbates
inequality, it is arguable that such problems have only grown worse with the coronavirus pandemic.
Many smaller businesses have succumbed to the economic damage: many have been closed during
lockdowns or suffered a decline in sales; many have gone out of business.
The changing patterns in teleworking and retail have accelerated in ways that have made Americans
more reliant on technologies produced by a few firms. Shares in the Big Four, along with Microsoft,
Netflix, and Tesla, added $291 billion in market value in just one day last week. It could therefore be
claimed that the dangers of Big Tech domination are more profound now than they were even a few
months ago

Based on article above:

1) What factors influence the degree of monopoly power a company has within an industry?

2) What are the advantages of a monopoly?

3) Why would a government want to prevent a monopoly? Discuss the policies a government could implement