Congress Wants to Put the Brakes on Runaway Acquisitions by Big Tech

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Congress Wants to Put the Brakes on Runaway Acquisitions by Big Tech

The Judiciary Committee of the U.S. House of Representatives recently released a comprehensive series of bills designed to curb the excesses of Big Tech. One of them, the Platform Competition and Opportunity Act, addresses one of the biggest, most obvious problems among the largest tech companies: that they use their deep pockets to buy up services and companies which might have one day competed with them.

We’ve said before that increased scrutiny of mergers and acquisitions is the first step in addressing the lack of competition for Big Tech. Restraining internet giants’ power to squash new competitors can help new services and platforms arise, including ones that are not based on a surveillance business model. It would also encourage those giants to innovate and offer better services, rather than relying on being the only game in town.

Big Tech’s acquisitiveness is well-known and has been on the rise. Analysis of Apple’s finances, for example, revealed that over the last 6 years, the company was buying a new company every three to four weeks. Not only do these sales keep startups from ever competing with incumbent powers, they also bring more data under the control of companies that already have too much information on us. This is especially true when one of the draws of a startup’s  service was that it provided an alternative to Big Tech’s offering, as we saw when Google bought Fitbit.

The acquisition practices of the largest tech firms have distorted the marketplace. Mergers and acquisitions are now seen as a primary driving force to securing initial investment to launch a startup. In other words, how attractive your company is to a big tech acquisition is now arguably the primary reason a startup gets funded. This makes sense because ultimately the venture capital firms that fund startups are interested in making money, and if the main source of profit in the technology sector is derived from mergers with big tech, as opposed to competing with them, the investment dollars will flow that way.

The Platform Competition and Opportunity Act requires platforms of a certain size—or those owned by people or companies of a certain size—to prove that each proposed acquisition isn’t anticompetitive. In today’s marketplace, that means Apple, Google, Facebook, Amazon, and Microsoft. These companies would have to show that they’re not trying to buy a service that competed with a similar feature of their platforms. In other words, Facebook, home to Facebook Messenger, would not have been allowed to buy WhatsApp under this law. Platforms of this size would also be prevented from buying a service which is either a competitor or is in the process of growing to be a competitor. In other words, Facebook’s acquisition of Instagram would have gathered more scrutiny under this framework. 

Stricter rules for mergers and acquisitions are a common-sense way to keep the big players from growing even bigger. The tech marketplace is top-heavy and concentrated, and the Platform Competition and Opportunity Act will prevent further imbalance in the marketplace. 

Published June 22, 2021 at 11:40PM
Read more on eff.org

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