Anti-Trust Legislation's Impact on Web-Based Businesses

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Timeline
Timeline
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Key Cases -  
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== KEY CASES ==
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Microsoft
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AT&T
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'''MICROSOFT v. U.S. DEPARTMENT OF JUSTICE (1998)'''
 +
 
 +
In 1998, the U.S. Department of Justice (DoJ) filed an antitrust lawsuit against Microsoft, accusing them of illegally seeking a new monopoly for its internet browser by offering it for free with its Windows operating system (OS). Many say that this ultimately caused the downfall of their biggest competitor, Netscape.
 +
 
 +
'''The Netscape Advantage'''
 +
 
 +
In the early 1990s, Netscape offered its relatively developed browser Netscape Navigator for $49. At the time, it was the most effective software for browsing the web. So why would consumers still be willing to pay to use Netscape when IE was offered for free? Navigator was compatible with multiple OSes, whereas IE, with it in its beginning stages, was only restricted to Windows. Additionally, almost all webpages could be viewed with Navigator, whereas IE may not be able to render sites properly, so content may appear misaligned. Because of this portability, website creators were more likely to cater their webpages to Navigator.
 +
 
 +
'''Browser War'''
 +
 
 +
Figure x shows the drastic changes in the internet browser market from the early 1990s to the mid 2000s. Netscape has had some success in the market due to the advantages noted above, peaking at 90% market share in 1996. However, a couple months earlier (mid 1995), Microsoft launched Windows 95 and Internet Explorer (IE). They were able to gain 10% market share after being in the market for only one year. Although Netscape still had its advantages over IE in the mid 1990s, IE continued to heavily innovate and gain market share at an astounding rate. Eventually, Netscape’s advantage could not be sustained as consumers found IE more convenient and worthwhile to use. By 1998, IE overtook Netscape as the leading internet browser. A few years later in 2005, Netscape virtually disappeared from the market.
 +
 
 +
'''Antitrust Lawsuit'''
 +
 
 +
In Microsoft’s eyes, they were not violating antitrust and were at most a non-coercive monopoly. They argued that users choose to run Windows OS on their computers. In fact, consumers have demonstrated a strong preference for Windows due to its convenience. Secondly, users are also able to uninstall IE if they would rather use a competitor’s software.
 +
 
 +
On the other side, the Department of Justice argued that browsers and OS are in different product markets and therefore do not have to be offered together. It would be sufficient if MS offered IE by itself, like how it does with Microsoft Office today. Secondly, by bundling IE with its OS, it was essentially forcing consumers and PC manufacturers to have IE on their products.
 +
 
 +
In April 2000, the judge ruled against Microsoft and required them to divide into two companies (also known as baby bills), separating the OS and software division. However, Microsoft immediately appealed it.
 +
 
 +
In 2001, a settlement was reached between Microsoft and the DoJ. Microsoft is required to share its APIs with third-parties so they can make their applications work better on Windows OS. However, it is interesting to note that there wasn’t a clause in the settlement that would prevent Microsoft from including other software with its OS in the future, which was the initial objective of this lawsuit.
 +
 
 +
 
 +
 
 +
 
 +
'''AT&T v. U.S. DEPARTMENT OF JUSTICE (1982)'''
 +
 
 +
Before the 1980s, AT&T was the only telecom provider in much of the US. They were able to achieve a monopoly status through vertical integration. On the left, we see that under AT&T, it branches off into Bell Operating Companies, which provides local telephone services, Bell System, which provides more long distance services, Western electric who supplies Bell System with phones and equipment, and finally Bell Labs, an R&D lab co-owned by Western Electric and AT&T. The antitrust lawsuit filed by the U.S. Department of Justice wanted AT&T to divest itself from Western Electric.
 +
 
 +
As the case progressed, AT&T knew they were going to lose the case. Instead of separating its operations from Western Electric, they proposed to break up its local phone monopolies into 7 smaller companies (aka “Baby Bells”) instead. This proposal allows them to keep its long-distance operations, which includes Western Electric and Bell Labs.
 +
 
 +
'''Baby Bells'''
 +
 
 +
Despite being broken up, you can see that most of the baby bells ended up consolidating amongst themselves and ended up in AT&T once again, or as Verizon. To this day, AT&T is still one of the world’s largest telecommunication companies.
 +
 
 +
This was the last example of a giant company being broken up by antitrust, but they ended up getting back together anyways. It is questionable whether it is worth the time and resources to break up giant companies like AT&T. However, we should note that although the Baby Bells consolidated decades later, the break-up gave smaller companies, such as Sprint, a fair chance to compete. Many believe that this was the reason why Sprint was able to survive to what it is today.
 +
 
 +
 
Current Situation -  
Current Situation -  

Revision as of 02:45, 20 November 2019

INTRODUCTION

Text


DEFINITION- WHAT IS ANTI-TRUST?

Anti-trust laws are also called competition laws, specifically in Canada. Their main purpose is to prevent large, influential businesses from becoming a monopoly that will restrict competition by taking over the entire industry. A company being a monopoly does not mean they are breaking the law. However, if they are a purposefully bulldozing through the other competitors then they are causing an unnatural shift in the market. Thus, anti-trust laws are in place to provide an equal playing field while also protecting consumers.

Consumers are protecting from companies charging ridiculously inflated prices just because they are the only option a consumer has. Of course, if there were more competitors in the market, the more power a consumer would have to go from one option to another. This power is missing when there is only one competitor. Thus, anti-trust laws ensure that consumers are not being taken advantage of by taking the potential to misuse the power out of the hands of monopolies.

An equal playing field is created with the enforcement of anti-trust laws which is essential. Businesses have the ability to run with an idea and not fear being unable to even enter the market because one company has all the power, all the customers and are rich enough to completely obliterate them. With these laws, all companies at the very least have a fair chance at success.

More specifically, anti-trust laws stop anti-competitive behaviours such as:

- price rigging

- bid rigging

- mergers and acquisitions

- monopolization


Price Rigging

This is an illegal action that occurs when two or more powerful competitors come together to fix or inflate prices in order to earn a higher profit and have the ability to take out the rest of the competition. This usually occurs when two of the main competitors in the same industry join forces and make the competitors have to come to them as they are the only source. With consumers not having many other choices, they are forced to accept the inflated price no matter how ridiculous, depending on the importance of the product and its demand in the market.

Walmart and Sobey's did exactly this. Knowing their position in the market, they decided to work with one another. They increased the price of bread by $1.50 to increase their profits. This may not seem like a large shift however, it cost the average Canadian family an average of $370/year more than before. Both companies were able to rig the price of bread because of it being a basic necessity overall.


Bid Rigging

This takes place when there is an illegal pre-negotiated contract made between two or parties regarding the results of a bid. The deal will entail a guarantee of one party purposefully losing the bid by low balling the offer so that the other party can win. Of course, a contract needs to have consideration, meaning both parties must get something out of it.

Thus, the contract is usually made with the intent that the losing party will be the winning party the next time that there is a bid in which the winning party will now lose on purpose. Companies team up to do this so that both can keep winning one after the other, back to back. They can take advantage of all the benefits while restricting all other competitors from winning a bid.


Mergers & Acquisitions

Mergers and acquisitions can be differentiated based on the type of way companies unite. Mergers take place when two or more companies come together and form one. Acquisitions take place when one company purchases another company and takes it under its umbrella. The two most common types of mergers and acquisitions are vertical integration and horizontal integration.

To visualize what integration looks like picture a ladder. For vertical integration, imagine the ladder being up-right. If a company were to move to a different step of the ladder, either up or down, they are vertically integrating. For horizontal integration imagine the ladder being sideways. If a company were to shift left or right, they are not moving to a different level and are horizontally integrating.

Thus, vertical integration means merging and acquiring a company on a different level of the supply chain but within the same industry. Horizontal integration means merging or acquiring a company on the same level of the supply chain while which industry the other company was in, does not matter.

An example of vertical integration would be a car manufacturer that builds the body of the car and buys the tires from another company but now merges with or acquires that tire company. The car manufacturer is on a different level of the supply chain than the tire company. A current example of horizontal integration is from when Facebook acquired Instagram because they are both on the same level of the supply chain and within the same industry.


Monopolization

Monopolization is when a company is attempting to become the single, sole firm in an industry with significant and durable market power that inhibits competition. This in comparison to the other market structures which include Oligopoly, Monopolistic Competition and Perfect Competition.

Oligopoly is a few dominant firms that have differentiated products so there is not much competition (not much more different that a monopoly). Monopolistic competition is getting a little bit closer to what anti-trust laws try to promote. It is a market structure in which there is a large number of small firms that sell similar, but slightly differentiated products so they have market power. There's a little bit of competition here. Perfect competition is the market structure that anti-trust laws push towards which means there are a large number of small firms that have no power over one another.


maybe insert bar chart here



SWOT ANALYSIS


Strengths

Anti-trust laws encourage healthy competition. This provides an equal playing field for all companies in which power is not a factor. All companies, no matter their size have a fair shot at getting consumers to come their way. This also means that anti-trust laws give consumers options. They will have many different companies to choose from to buy the same or similar product and do not have to pay outrageous prices to one company because they are the only company that can cater a specific need.


Weaknesses

However, the fear of being a monopoly and being hit with an anti-trust lawsuit discourages healthy growth of companies. Companies do not have an incentive to grow bigger because you could potentially be dissembled and punished. Additionally, anti-trust laws could potentially be taking away the convenience a company can provide consumers should they be legally allowed to monopolize. For example, there has been a shift from physically shopping in retail stores to online shopping. Thus, a company like Amazon that provides the opportunity to buy just about everything online provides convenience. However, they may be hit with an anti-trust lawsuit soon as they soar through dominating more and more industries.


Opportunities

As customers' needs evolve and shift, this presents an opportunity for authorities to change the law in regards to anti-trust. This would help to make it more applicable to today's trends and perhaps to target the big tech companies. The big tech companies consist of Apple, Facebook, Amazon, Google, etc.


Threats

The threat that anti-trust laws present have to do with the vague and broad language that the laws are written in. This creates loopholes. Large corporations are getting away with breaking the law because they are not breaking the portion of the law which says that consumers must be protected. Consumers are approving of the behaviour and thus, the companies are scathing by untouched. Like mentioned before, Amazon would be the perfect example of this.




History - Laws Timeline

KEY CASES

MICROSOFT v. U.S. DEPARTMENT OF JUSTICE (1998)

In 1998, the U.S. Department of Justice (DoJ) filed an antitrust lawsuit against Microsoft, accusing them of illegally seeking a new monopoly for its internet browser by offering it for free with its Windows operating system (OS). Many say that this ultimately caused the downfall of their biggest competitor, Netscape.

The Netscape Advantage

In the early 1990s, Netscape offered its relatively developed browser Netscape Navigator for $49. At the time, it was the most effective software for browsing the web. So why would consumers still be willing to pay to use Netscape when IE was offered for free? Navigator was compatible with multiple OSes, whereas IE, with it in its beginning stages, was only restricted to Windows. Additionally, almost all webpages could be viewed with Navigator, whereas IE may not be able to render sites properly, so content may appear misaligned. Because of this portability, website creators were more likely to cater their webpages to Navigator.

Browser War

Figure x shows the drastic changes in the internet browser market from the early 1990s to the mid 2000s. Netscape has had some success in the market due to the advantages noted above, peaking at 90% market share in 1996. However, a couple months earlier (mid 1995), Microsoft launched Windows 95 and Internet Explorer (IE). They were able to gain 10% market share after being in the market for only one year. Although Netscape still had its advantages over IE in the mid 1990s, IE continued to heavily innovate and gain market share at an astounding rate. Eventually, Netscape’s advantage could not be sustained as consumers found IE more convenient and worthwhile to use. By 1998, IE overtook Netscape as the leading internet browser. A few years later in 2005, Netscape virtually disappeared from the market.

Antitrust Lawsuit

In Microsoft’s eyes, they were not violating antitrust and were at most a non-coercive monopoly. They argued that users choose to run Windows OS on their computers. In fact, consumers have demonstrated a strong preference for Windows due to its convenience. Secondly, users are also able to uninstall IE if they would rather use a competitor’s software.

On the other side, the Department of Justice argued that browsers and OS are in different product markets and therefore do not have to be offered together. It would be sufficient if MS offered IE by itself, like how it does with Microsoft Office today. Secondly, by bundling IE with its OS, it was essentially forcing consumers and PC manufacturers to have IE on their products.

In April 2000, the judge ruled against Microsoft and required them to divide into two companies (also known as baby bills), separating the OS and software division. However, Microsoft immediately appealed it.

In 2001, a settlement was reached between Microsoft and the DoJ. Microsoft is required to share its APIs with third-parties so they can make their applications work better on Windows OS. However, it is interesting to note that there wasn’t a clause in the settlement that would prevent Microsoft from including other software with its OS in the future, which was the initial objective of this lawsuit.



AT&T v. U.S. DEPARTMENT OF JUSTICE (1982)

Before the 1980s, AT&T was the only telecom provider in much of the US. They were able to achieve a monopoly status through vertical integration. On the left, we see that under AT&T, it branches off into Bell Operating Companies, which provides local telephone services, Bell System, which provides more long distance services, Western electric who supplies Bell System with phones and equipment, and finally Bell Labs, an R&D lab co-owned by Western Electric and AT&T. The antitrust lawsuit filed by the U.S. Department of Justice wanted AT&T to divest itself from Western Electric.

As the case progressed, AT&T knew they were going to lose the case. Instead of separating its operations from Western Electric, they proposed to break up its local phone monopolies into 7 smaller companies (aka “Baby Bells”) instead. This proposal allows them to keep its long-distance operations, which includes Western Electric and Bell Labs.

Baby Bells

Despite being broken up, you can see that most of the baby bells ended up consolidating amongst themselves and ended up in AT&T once again, or as Verizon. To this day, AT&T is still one of the world’s largest telecommunication companies.

This was the last example of a giant company being broken up by antitrust, but they ended up getting back together anyways. It is questionable whether it is worth the time and resources to break up giant companies like AT&T. However, we should note that although the Baby Bells consolidated decades later, the break-up gave smaller companies, such as Sprint, a fair chance to compete. Many believe that this was the reason why Sprint was able to survive to what it is today.


Current Situation - Tech Giants Key Concerns (Interpretation & Enforcement)

Antitrust & IP - Patents Medicine Web Basics New Issues

What's next - Impact (pros/cons)

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