A Bleak Regulatory Future for the Tech Sector
May so far has been full of omens for the future of technology regulation. On Monday the 11th, the Obama administration announced that it would take a tougher new stance on antitrust issues and repealed several antitrust guidelines issued by the Justice Department under George W. Bush. Christine Varney, the newly confirmed assistant Attorney General for antitrust, vowed to keep tech companies in the line of fire.
On May 13th, the European commission fined Intel $1.45 billion for engaging in “anti-competitive practices,” following an investigation which found that Intel had effectively paid off customers (through discounts and rebates) to use Intel’s chips exclusively, rather than those made by competitor AMD. Japanese and South Korean antitrust regulators have imposed similar penalties on Intel. Apparently, making a product at a lower cost is “unfair” business practices these days. Consider this more evidence of the adage of “those who can compete, do; those who can’t, sue.”
The problem with going after tech companies for having too large of market share is that often times, these companies benefit from network effects: the more people who use a product or service, the more that service becomes mainstream and useful, and thus the more people begin to use it, and so on (for example, search engines, operating systems, digital media formats, network protocols, etc.). Anyone who’s taken economics 101 can see that by fragmenting certain technology markets, regulators will make it difficult (if not impossible) for firms to achieve large economies of scale. This leads to higher costs for producers (not including the legal costs incurred fighting antitrust litigation), and, you guessed it, higher prices for consumers.
The tech sector has remained relatively unhampered by government regulation thus far (compared to other sectors of the economy like health care and energy), and we’ve enjoyed tumbling prices and mind-boggling innovation over the last several decades. The industry has done extremely well, both for itself and for its customers, without any “help” from government intervention. Let’s leave Silicon Valley alone.