On August 19, the Wall Street Journal highlighted the possibility of a joint antitrust investigation against big technology companies. According to the report, multiple state attorneys general in the US plan to launch a formal investigation in September. The Wall Street Journal expects an official announcement by the end of August. The defendants in this investigation could involve technology giants such as Amazon, Facebook, and Google.
On August 19, the Department of Justice’s antitrust chief, Makan Delrahim, stated that he was working with the state attorneys general. Together, they plan to investigate the alleged anti-competitive behavior of big tech companies.
In July, the Department of Justice announced a broad antitrust review of major technology platforms. However, the DOJ did not name the involved companies. However, the agency has revealed its plans to investigate anti-competitive behavior in areas of online retail services, social media, and search engines. According to the Washington Post’s report, this focus alludes to industry leaders Amazon, Facebook, and Google.
Big technology stocks reacted to the news of a potential joint antitrust investigation. On August 20, Amazon (AMZN), Facebook (FB), and Alphabet (GOOG) closed lower than their previous closing prices by 0.6%, 1.1%, and 1.1%, respectively.
Why is this investigation a threat to big tech?
On August 13, Federal Trade Commission Chairman Joe Simons spoke of the possibility of breaking up major technology platforms. Simons expects this measure to be a difficult but necessary one in a bid to stifle anti-competitive behavior.
The FTC is currently focused on investigating Facebook’s strategy of acquiring upcoming technology startups. Presidential candidate Elizabeth Warren has demanded the breakup of Facebook, Alphabet, and Amazon.
Lately, the DOJ and the FTC have been working to determine their jurisdictional areas, as they take on investigations against big technology companies. Simons explained that both the DOJ and the FTC could investigate a particular big technology company, but in different areas.
Amazon is already facing investigation in the EU
Amazon’s problems in the EU were first noted in August 2018. At that time, regulators highlighted Amazon’s practice of competing with third-party merchants hosted on its site with respect to its line of products. European Competition Commissioner Margrethe Vestager expressed concern about the possibility of the company using the data of these third-party merchants to suppress competition.
These allegations, if proved, can cost a company up to 10% of its worldwide annual revenues in penalties. To learn more, please refer to Is Amazon in the European Commission’s Antitrust Radar?
In July 2019, the EU launched a formal investigation against potentially anti-competitive practices of Amazon. The regulator would be investigating whether Amazon has been enjoying an unfair advantage over the smaller sellers on its platform, thanks to the sales data that it collects. To learn more, please read Amazon Is under EU Anti-Competitive Scrutiny.
Amazon convinced German and Austrian regulators to drop their respective antitrust probes, as the company changed its business terms for marketplace sellers. Effective August 16, the tech giant will provide a 30-day notice period before terminating the accounts of marketplace sellers. Until then, Amazon had the unlimited right to block accounts instantaneously.
The revised agreement terms also allow European sellers to launch lawsuits against Amazon in their domestic countries. Previously, such a lawsuit could only be instigated in Luxembourg.
EU investigation can result in massive fines
If history is any indication, an EU investigation can prove to be a big hit to Amazon’s profitability. In March, the European Commission slapped Google with a hefty fine of $1.7 billion for its violation of the EU’s antitrust laws. However, Google appealed this fine to the General Court of the European Union in Brussels.
Additionally, Google is appealing the $3.0 billion and $5.0 billion fines levied by the EU antitrust agency in 2017 and 2018, respectively. To learn more, please read Google Picks a Fight with the EU over Its AdSense Fine.
In July, the EU the fined Qualcomm (QCOM) $272 million (242 million euros) for anti-competitive behavior and predatory pricing against a competitor, Icera. Qualcomm is charged with abusing its market-leading position in 3G baseband chipsets to stifle competition. In January 2018, the EU fined Qualcomm $1.2 billion (997 million euros) for paying Apple to use its 4G chip exclusively.
In May 2017, the EU had levied a $122 million fine on Facebook related to its acquisition of WhatsApp. The company can also potentially face billions of dollars in fines in the EU related to GDPR (General Data Protection Regulation) violations. To learn more, please refer to Facebook May Face Billions in Fines in EU.
Amazon is being criticized for multiple other issues
So far, 2019 has not been kind for Amazon, especially on the regulatory front. Influential public figures such as President Donald Trump, as well as presidential candidates Elizabeth Warren and Bernie Sanders, have repeatedly criticized the company.
This criticism has focused on the company’s low payment of federal taxes and not paying a minimum wage of $15 per hour to its employees. President Trump is a frequent critic of the Washington Post’s news coverage practices. To learn more, please read Are Politicians Targeting Amazon Stock?