Vested Shorts: Regulators crack down on tech monopolies

Market Snapshot

Despite subpar quarterly results from some of the top companies such as American Express and CSX Corp, the major US indices rebounded from Thursday’s dip, ending the week with a slight increase. The positive weekly closure is likely a sign of the market’s optimism concerning easing inflation and the expected end of the Federal Reserve’s rate hikes, with a quarter-point increase anticipated in next week’s policy-setting meeting potentially marking the end of a historically intense monetary tightening cycle.

Data as of market close 21 Jul 2023

Regulators Crack Down on Tech Monopolies

In a recent House hearing, Lina Khan, the chair of the Federal Trade Commission (FTC), faced intense criticism for the agency’s efforts to rein in the growing power of tech giants. Republicans accused Ms. Khan of “bullying” businesses through her extensive lawsuits and investigations.  The FTC’s track record of four unsuccessful merger trials, including Microsoft’s $69 billion acquisition of Activision, was also brought into question. Let’s delve into some of the recent probes conducted by the FTC.

• OpenAI: Following a leak from The Washington Post, the FTC initiated an inquiry into the creators of ChatGPT which utilizes a “large language model” (LLM) alllegedly trained on proprietary data from the internet. The investigation is expected to cover a broad range of aspects, including the training of LLMs, customer information, pricing, marketing practices, and safeguards in place to govern ChatGPT’s responses. 
• Meta: The FTC’s legal battle against Meta, formerly Facebook, faced setbacks when the agency lost a lawsuit seeking to block Meta’s acquisition of VR studio Within Limited in January 2023. Subsequently, in May, the FTC accused Meta of violating user privacy and proposed a ban on monetizing data from underage users. In response, Meta dismissed the allegations as a mere political stunt.
• Amazon: Amazon also fell under the FTC’s radar, with the agency accusing the e-commerce giant of engaging in deceptive practices related to Amazon Prime subscriptions. Specifically, the FTC claimed that Amazon enrolled consumers into Prime without explicit consent and designed a complex cancellation process dubbed the “Iliad Flow” to deter subscribers from canceling their memberships.
• Streaming Companies: The Federal Trade Commission’s “click to cancel” proposal would require companies to offer a simple mechanism for users to cancel subscriptions in the same way they signed up. Companies like Disney, Netflix, and Warner Bros. Discovery claimed that the proposed regulation could infringe on their freedom of speech and confuse their customers.

Ms. Khan’s tenure has led to internal divisions within the agency, prompting the resignation of two Republican commissioners and several senior officials. Regardless, the agency has begun drafting an update for its merger guidelines which “would intensify scrutiny on private equity funds.” Despite the criticism, the White House continues to back Ms. Khan, highlighting the positive outcomes she has achieved for Americans.