The antitrust report published last week by a House of Representatives subcommittee has set the wheels in motion to tackle anti-competitive behaviours in Big Tech. We think it has little immediate effect for investors today, but the risks are mounting.

Anti-competitive behaviours are not exclusive to the tech sector. We wrote extensively about dying competition in the US in a 2018 thematic report (Oligopoly USA). Many industries have become highly concentrated, which has allowed the share of corporate profits of GDP to break away from its mean-reverting nature.

This has driven US exceptionalism in equity markets and suggests that this should unwind if antitrust measures are successful. However, this will likely be a slow march if authorities follow the precedent of history. After a seven-year lawsuit, the Bell System monopoly was not broken up in 1956. The first antitrust lawsuit launched against IBM in 1969, culminated a 13-year case that was eventually dropped. More recently with Microsoft, the DoJ called for the break-up of Microsoft but agreed to settle in 2001.

Charts Source: Bloomberg, Macrobond and Variant Perception

The pandemic has increased consumer reliance on Big Tech. A survey by National Research Group found that 88% of respondents had a “better appreciation” for tech’s positive impact on society compared to before the outbreak. Still, consumers broadly feel they should be regulated further with roughly equal support from Republican and Democrat supporters.

Congress’s latest report breaks away from the tradition of looking at price behaviours to determine the effects on consumers from anti-competitive behaviour. The cost of processing hardware has only gone down alongside Moore’s Law (the doubling of transistors on a chip every two years).

Charts Source: Bloomberg, Macrobond and Variant Perception

A Blue Sweep in the US will likely see a greater embrace of the recent antitrust report recommendations, while the EU has just announced more restrictions for tech companies, and the UK CMA is planning to raise its scrutiny.

Antitrust legislation is gathering pace, which increases the probability of a new wave of competition and successful disruption in the future. This won’t happen immediately, but it’s a risk that investors should track closely.