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OPINION

Regulators need to broaden scope

Regulators need to broaden scope
October 26, 2017
Regulators need to broaden scope

BMW certainly has some good company in the dock. Qualcomm Inc (US:QCOM) has just been hit with a T$23.4bn (£596m) fine by Taiwan’s Fair-Trade Commission, which said that the chip maker abused its monopoly over smartphone modems to squeeze higher licensing fees out of its customers. Qualcomm had previously fallen foul of regulators in both China and South Korea, while other companies such as Infineon Technologies (ETR:IFX) and Panasonic Corp (TYO:6752) have faced censure from antitrust regulators in other locales. Meanwhile, some companies are fighting back. Alphabet (US:GOOGL) has launched a legal challenge to the €2.4bn (£2.2bn) fine imposed by the European Union (EU) for stacking the deck in favour of its in-house products by manipulating Google's search algorithms, while The European Court of Justice is to re-examine an earlier ruling that formed the basis of a €1.06bn antitrust fine imposed on another US tech giant, Intel (US:INTC).

But increased activity on the regulatory front glosses over the inadequacy – or narrowness – of the scope of the criteria employed by regulators, often primarily focused on ‘consumer welfare’ (ie, short-term price effects). Even the doctrine of ‘stakeholder’ interests seems inadequate when you’re faced with a corporation that is legally domiciled in one country, but with financial assets held in another, and staff and management spread over several more. And in terms of legal (ie, financial) clout, how do you go about regulating an entity such as Apple (US:AAPL) whose cash resources exceed gross domestic product measures for 65 per cent of the world’s national economies?

The growing dominance of multinationals such as Apple and Amazon (US:AMZN) has some serious implications for national governments, not only in fiscal terms, but also for the fundamental question of sovereignty. EU officials have been agitating for a common tax-base policy among member states to prevent corporations from taking advantage of preferential rates, but even if that was ever passed into legislation, companies would simply look beyond the continent for opportunities. A global approach would be required to deal with companies that play fast and loose with borders, but even that mightn’t be enough. It sounds fanciful, but some tech analysts envisage a future in which businesses and their operations might move entirely into the cloud – where is the jurisdiction there? Both the EU and the UK have proposed new plans to tighten screening for foreign investments that raise public order and/or national security concerns, but regardless of whether the new measures have the desired effect, it all seems very last century.

As ever, the legal fraternity is set to clean-up from the rise in global antitrust cases, but the implications for investors are less clear, beyond the view that markets tend to silt up the fewer the participants. That hasn’t stopped investors marking-up the subject of an article – 'Amazon’s Antitrust Paradox' – published in the Yale Law Journal by visiting fellow Lina Khan. The analysis succinctly outlines the threat posed to competition by the business model pursued by Amazon, which creates incentives to pursue growth over profits. Ms Khan concludes that “predatory pricing becomes highly rational — even as existing doctrine treats it as irrational and therefore implausible”.