Monopoly: Not A Game!

Jul 26, 2018 By Aaditi P, Writer Intern
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In June 2018,  a federal judge approved AT&T's purchase of the media company Time Warner for a whopping $85.4 billion! 

The U.S government was concerned that the deal would be a disadvantage to customers and discourage competition. However, it was overruled by the judge who argued against it. Now, the U.S Department of Justice has filed an appeal against the merger, halting the process.

The appeal came just days before news arrived that the European Union had imposed a fine of $5.1 billion on Google. Google has been blamed for manipulating its power in the mobile phone industry and behaving as a monopoly.

What are Monopolies?

The basic definition of a monopoly is a company, firm, or entity that rules an entire sector/industry of the market. However, the meaning of monopolies goes much further than this. For example, a certain brand can use its assets or profits to prevent competitors from entering the market, which is considered illegal.

Monopolies are concerning because cush companies can manipulate prices, lower the quality of their products/services, and get away with corrupt practices simply because they are the only ‘player on the field’ and consumers are forced to buy from them. However, thanks to multiple laws and acts, the government can take legal action against monopolies exhibiting this behavior.

The history of monopolies ranges back to the late 1800’s when many people protested against the enterprises for increasing prices left and right. As a result of this, the government passed the Sherman Antitrust Act in 1890, banning trusts and monopolies that threaten trade.

One of the most famous cases of the government against a monopoly was the AT&T antitrust case of 1982. Originally part of the network of companies known as the Bell System, AT&T held a comfortable monopoly in the mobile industry. After many close run-ins with the law for their practices, the company was finally ordered to break up into smaller entities which came to be known as Baby Bells. 

The Impact of Monopolies

AT&T's purchase of Time Warner is considered a vertical merger, which means the two companies do not compete, but instead work together to offer services to consumers. We had written here about Disney's bid for 21st Century Fox. Vertical mergers are different from horizontal mergers, where companies buy out their competition. 

Many media executives say that with Amazon and Netflix getting into the content market, merging is important for their future. The original ruling that allowed AT&T and Time Warner to merge argued that this would allow AT&T to lower its prices. However, recently, AT&T announced an increase to their DirecTV Now Service fee, but offer a lower-priced option without the sports channel. Also, it is possible that Time Warner's HBO channel may be forced to increase the programs they offer which could lower the quality of their content. 

On the other side of the ocean, the recent fine on Google by the EU may affect Google’s partners. Google was blamed for forcing phone makers like Samsung to include their services so that Google apps are available to a wider audience. Google argues that since it provides Android free of cost to phone makers, they should be allowed to charge for the services. However, the EU believes such practices discourages competition. 

Both the AT&T-Time Warner case and Google’s fine illustrate how major monopolies can manipulate a certain market or industry to their advantage. What do you think about monopolies - are they good or bad? 

Sources: CNBC, The Verge, NYTimes, WSJ, Investopedia