Although tech stocks have greatly outperformed broader equities in recent years, studying the ‘antitrust’ issue before getting into them would be wise
- Despite clocking staggering growth, some digital giants generate meagre profits, choosing to price below-cost and expand widely instead
- Some tech companies are at the centre of e-commerce and serve as essential infrastructure for many other businesses
- Elements of these firms’ structure and conduct may pose anti-competitive concerns; recent announcements in the US suggest antitrust scrutiny may be on the way.
Monopolies have an historical precedent
In The Curse of Bigness – Antitrust in the New Gilded Age, Professor Tim Wu of Columbia Law School explains how in the early 20th century, the ‘Trust Movement’ in the US called for the reorganisation of the US/world economy into the form of a giant monopoly corporation.
In the US, this monopolisation movement advanced rapidly. By the early 1900s, nearly every major US industry was either already controlled by, or coming under the control of, a single monopolist. Among the best-known monopolies were John D. Rockefeller’s Standard Oil, US Steel, and International Mercantile Marine Co. These inspired copycat financiers who created tobacco, cotton, sugar monopolies and so on.
What was the justification at the time?
In the 1890s, the US and world economy had seen hundreds of firms being thrown into bankruptcy. Many blamed ‘ruinous competition‘ for driving prices too low. The leading exponents of the ‘Trust Movement’ argued that monopolies were a superior form of business organisation and would save the US economy from ruin. They thought fierce competition had no place in a modern industrialised economy.
