The impact of antitrust laws on innovation and growth

The European Union has recently implemented laws such as the Digital Markets Act which seem to copy the approach of Joe Biden’s administration regarding big technology companies. These laws may do more harm than good for individuals, innovation, and the economy as a whole.

The reason these misguided laws have come about, as is so often the case with antitrust, is fear of monopolies. It is true that monopolies can cause harm to consumers, but they are simply not present in technological industries as commonly as many politicians and bureaucrats seem to think.

Of course, there are plenty of very large technology companies, but they are in constant competition for market share, which benefits consumers because it leads to innovation of new products and prices pushing downwards. The role of government is to use regulation to prevent monopolies and ensure our interests as consumers are protected, but to avoid interfering unnecessarily though overregulation when it risks slowing down innovation and growth, which ultimately harms the economy and harms us all.

Nonetheless, Brussels is determined to push ahead with the Digital Markets Act. In an impact report, the architects of this mammoth piece of legislation identify three problems they believe the European digital market has: dominant gatekeepers in digital markets limit competition, resulting in poor outcomes for consumers; businesses facing unfair practices and imbalances in bargaining power due to their dependence on gatekeepers; and, global digital players facing regulatory fragmentation and compliance costs, while smaller players struggle to compete.¹

The contentions in the report closely mirror the work of Lina Khan, of the Biden administration’s Federal Trade Commission.² Restricting the market share of companies which are the biggest and most successful, when they are not monopolies, not only fails to promote fair competition but also discourages investment in innovation and the pursuit of excellence.

Innovation is the backbone of progress and economic growth. It is a result of creative and talented individuals who dare to think differently and bring new ideas to life. Innovation cannot be imposed or created artificially through antitrust laws.

Companies which have to rely on government regulations to limit their competition, rather than innovation and creativity, will eventually become stagnant and irrelevant. In contrast, companies which can compete and innovate to retain their market share, will constantly push the boundaries of what is possible, and create products that benefit consumers and society as a whole.

The technology industry in particular is full of countless examples of startups and entrepreneurs which have seemingly emerged from nothing to build successful companies, which benefits them, their consumers, and the wider economy. Take the French company BeReal, for example, which decided to enter the highly competitive world of social media with an innovative design and idea, and a formidable marketing campaign.⁴

Restricting growth through antitrust laws is a shortsighted approach which does not address the root causes of monopolies. Such laws may provide temporary relief by creating a shaky, short-lived environment in which companies are supposed to compete with dominant players, but in reality, they rarely achieve their intended purpose.

In today’s globalised world, where a company is based almost does not matter any more, especially when it comes to technology companies which facilitate global communications. For example, when you post on Instagram, you are probably not actively aware in that moment of the fact that you’re a consumer of an American company. In reality, Instagram is owned by Meta, which is American.

Thanks to the exponential growth of the technology industry, companies from the US and all over the world are able to bring their products to us quite easily. If a person has concerns about their privacy, they can simply choose not to use that company’s products. The EU’s approach undermines this, suggesting Brussels wants to see a bifurcated Internet, with Europe cut off from America. This would not help anyone.

It is through the pursuit of excellence and the satisfaction of consumer needs that companies can achieve market share, not through government regulations that limit their potential. A dynamic and competitive market is essential for progress and prosperity, and we should strive to create an environment that fosters these values.

This article was written by Lautaro Soza Torrijos. Lautaro is a fellow with Young Voices Europe, originally from Argentina but based in Hungary. He is a young writer and campaigner, as well as studying international relations at the University of Pécs.