Article last updated 22 July 2025.
This is the second chapter in a three-part series about the chances of US tech giants getting skewered by an anti-trust agenda. For the first chapter, please click here.
Apart from some fairly benign congressional hearings, America’s tech giants have faced minimal scrutiny at home. The European Union has been active, though, fining Alphabet €2.4bn in June for misusing the dominance of its Android operating system and now investigating Amazon’s possible misuse of data on sales made by its third-party merchants. What will it take for the US government to take aim at these behemoths?
Anti-trust law has never been a precise science, blowing hot and cold with the prevailing winds of time since it was first employed in the US in the late 1800s. It took the assassination of a protectionist president and the direct prodding of Teddy Roosevelt to get the US Department of Justice to bring its first successful case against the great trusts. Northern Securities, a holding company set up by John Pierpont Morgan and associates, had gained control of an array of railroads whose tracks spanned the northern half of the United States.
The battle, like so many great American tales, led all the way to the Supreme Court. In 1904, the shareholders of Northern Securities argued that Congress had no right to interfere in the buying or otherwise transferring of property. The nub of the debate was the tension between unfettered property rights and the public good. Looking back, it seems surprising that breaking up Northern Securities was decided with the slim margin of five to four.
The amount of money it could have gouged from controlling the transfer of goods from countless farms, forests and mines to market was mindboggling. If that wasn’t detrimental to commerce, what would be? But a century ago, many believed such overcharging would simply create an opportunity for another company to create a cheaper rival line. It would only be anti-competitive if Northern Securities were to pay off rivals or create contracts that prevented that from happening.
Buying or owning what already existed couldn’t be legal for some but a crime for others only because of what they already own. If that were true, the integrity of property rights could be eroded to nothing, argued the dissenting four Justices, led by the chief of the Supreme Court back in 1904. But they lost; it was a sea change in the law.
Figure 4: US stock market composition
The largest five companies in the S&P 500 index by market value represent a smaller share of the market in 2018 than in 2000.
Source: Datastream and Rathbones.
A paradigm shift
By 1911, this new way of thinking was unanimous. In Standard Oil of New Jersey versus United States, the Supreme Court, with only partial dissent, determined that John D Rockefeller’s mob of interests in petroleum was illegal and should be broken up. The dizzying web of interconnected companies controlled 90% of the US market in shipping, refining and selling oil and its derivatives, all of it essential for the lighting and mechanisation of society.
By controlling the pipelines and refineries, it became the principal buyer and was able to set prices. It also colluded with railways to charge rivals more for transportation, allegedly sabotaged rival installations and engaged in predatory pricing (selling something for less than it costs to make in an attempt to put your opponents out of business).
This case created a new precedent and a new test: monopolies and massive businesses were not inherently bad, some may not harm the public interest. It was up to courts to use the “rule of reason” to decide in each case which were benign and which distorted the market by weighing the pros and cons. This led to some ambiguity about what was reasonable and what wasn’t. Over the decades since, a raft of anti-trust cases have built up the law. But the views of the Supreme Court Justices on the bench have been just as important as previous decisions.
Another complication has been the rise of digital technology. Hi-tech businesses, with their complexity of design, operation and business models, make anti-trust law difficult to apply. Microsoft continually clashed with the government over whether it was anti-competitive. It eventually settled in 2001, and agreed to be more open with its software and coding in return for remaining intact as a business
Recent congressional hearings about today’s tech giants are echoes of the sparring matches between Microsoft and the government back in the 1990s — even down to Microsoft founder Bill Gates’ surly responses and Google’s empty chair. Is a slew of anti-trust cases possible? Just as it took the prodding of a president to get the government to move on the trusts of yesteryear, so it could work in reverse. Donald Trump has shown himself to be dismissive of consumer protection and supportive of reducing impediments to business. This bears out when you look at the Department of Justice’s anti-trust actions. Between 2011 and 2016, it averaged 75 suits a year. In 2017 it undertook 34. As of September 2018, the number stands at just 25.
Economic genius or monopolistic manipulation?
Monopolies that have been broken up have all tended to underpin the pivotal technology of the time. Railways were overwhelmingly important to America in the 1800s to early 1900s. They brought jobs, mail and all manner of supplies to fuel expansion to the West. Similarly, America in 1911 was waking up to the tremendous freedom and opportunity provided by the internal combustion engine.
Oil was the lifeblood of this new economy and it was increasingly controlled by one gigantic octopus of a company. Up to the early 1980s, AT&T controlled American communication through owning all of America’s telephone lines. This network was the foundation for fax machines and electronic information transfers, the internet and eventually the digital age. AT&T was busted up because it was stifling innovation in the sector.
So where does all this leave today’s internet titans? Some of them chime closely with the trusts of the 20th century. But there are pivotal differences. First, consumers haven’t been the victims of tech companies’ hefty pricing power. Instead, they have benefited from free access to the greatest repository of knowledge and entertainment ever seen. They can contact friends and family instantly, whatever the distance, for nothing. They can keep a virtual record of their lives, they can search for anything in the world from the back of a bus and have it delivered to their doorstep in days, and they can create a business out of thin air and an idea.
The price of the tech companies’ dominance is actually borne by businesses that aren’t large enough, smart enough or cool enough to compete. A century ago, Standard Oil was mistrusted and widely despised by Americans. But it can be argued that the company’s dominance was driven by economic genius and an operational tenacity that saw the distribution of a new technology explode across the continent at much lower prices for customers.
Tech giants have revolutionised this model by charging consumers nothing at all. Well, nothing in cash. Consumers are paying for new-age wonders with their information. When consumers saw how fast and loose social media companies were with this data, it created a backlash. Less so for other tech companies, such as Netflix, Amazon, Alphabet, Microsoft and Apple.
Still, unease reigns over their market power, their vast stacks of personal data and the voluntary nature of their tax payments. It seems like the Trump administration is likely to ease anti-trust restraints on businesses generally, but it could launch lawsuits against particular companies that raise the president’s ire. In the next issue of InvestmentInsights we will look at how Mr Trump’s Supreme Court nominations could work against any attempts to rein in big tech, why busting US champions might be counterproductive and — if it comes to it — how break-ups may look.
Figure 5: Mapping the market
Over the past 20 years, the share of the largest five companies in the S&P 500 index by market value has changed frequently.
Source: Datasteam and Rathbones.
This is the second in a three-part series on how an anti-trust crusade could impact Silicon Valley. Click here for the concluding chapter, looking at how newly appointed Supreme Court Justices could stifle attempts to break-up tech giants.
