Antitrust: what it is and why you should trust it

Apple joins the long line of tech giants to fall trap to the EU’s antitrust regulations.

Last week Apple was hit with a whopping 1.8bn euro fine over anti-competitive practices regarding its music streaming services. The crime? Its users were being charged unreasonable markups in purchases effectuated through the App Store and Apple purposefully withheld users from information entailing competing services.

It seems such market abuse has become increasingly common nowadays. Conglomerates and tech giants use their wide reach to exert their influence – often at the expense of the end consumer. But why is it that certain firms can grow uncontrollably large, and should we even try and stop them?

Market structures that leave the door open for one or a few firms to gobble all of an industry’s market share are known as monopolies (or oligopolies). A monopoly is typically defined as a firm with a 25% or greater stake in a market; they can form in benign and organic ways and are not all as bad as one may be inclined to think.

For instance, a very niche industry may only have one producer, constituting a pure monopoly. Moreover, having only one firm operating can sometimes be the most economically efficient course of action; when building a tramline in a city, it is much more efficient to only employ one tramway company. Too many different companies would clog up the streets and cause confusion. Hence a legal or natural monopoly is said to exist.

However, the monopoly man has an evil twin: the profit-maximizing monopoly that, through various nefarious ways, snatches consumer welfare and pockets it for himself. Clear downsides to pure economic liberalism are market failures, falling product quality and variety along with higher prices that come with market abuse and anti-competitive practices.

Whether it is flooding the market with cheap goods to kill competition (predatory pricing), withholding information, price discrimination between consumers or setting a price floor to block any new market entrants (limit pricing), such practices undermine the essence of competition and encourage inefficient business practices. Static inefficiencies are said to exist in profit-maximizing monopolies, as society is worse-off as a whole because of them.

Enter antitrust regulations, the overseeing regulatory body that constantly surveys that public interest are being fulfilled in markets. Mergers and acquisitions, pricing strategies and other business practices may be blocked under antitrust law if they are deemed to be infringing on free competition. However, proving malfeasance is often easier said than done. Antitrust cases can take years to resolve and can often be left up to interpretation. For instance, the case against Apple was first raised 5 years ago. Furthermore, applying antitrust is even more difficult when meddling in international trade disputes.

Antitrust helps keep competition fair, ensuring that public interests are protected. With weak regulations conglomerates would be free to drive out competition and retain high prices and low product variety. Regulations are especially important in the production of needs and other merit goods, as this is where consumers are the most vulnerable. And of course, regulations need to be placed to keep tech giants in check. For the meantime, it seems as though we can trust antitrust.