New European anti-trust legislation cracks down hard on a number of prominent U.S. tech companies, but should investors be worried?
Dec. 16, 2021
Yesterday saw the European Union (EU) vote to strengthen its rules and regulations surrounding some notable U.S. tech giants. The Digital Markets Act (DMA), first proposed in December of 2020, targets a list of companies that have been identified as online gatekeepers.
These companies are Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), and Meta (NASDAQ: FB) (formerly Facebook) – no real surprises there. The Act sets out a strict list of dos and don’ts for the firms that could lead to fines of up to 10% of global turnover if violated.
What exactly is the new legislation?
Some of the key rules contained in the DMA relate to the conducting of unfair business practices, which many of these companies will be well aware of having been hit with associated fines very recently.
These gatekeepers will now no longer be allowed to rank their own products more favorably in searches compared to competitors and must allow users of their ecosystems to conclude deals outside of their proprietary platforms. These are just some of the many regulations these companies must now completely with to avoid hefty fines.
The EU also now has the power to restrict or, at the very least, halt major acquisitions that could be deemed as anti-competitive. It’s clear that the lawmakers are doing their best to wrest back control from these tech giants in an attempt to prevent a lack of competition within the market,
As Margrethe Vestager, the EU antitrust chief, put it in a tweet following yesterday’s announcement, “it sends a clear message that in our EU democracy it is not for BigTech to set the rules of the game, it is for legislators.”
How will this impact investors?
Exactly how this will play out for investors is still very much up in the air. All of these companies can still innovate and provide their services, but some strategies will undoubtedly have to change. As control moves more towards the consumer, the tech companies will now need to work much harder to keep them.
All of these companies still maintain a vice-like hold of the overall market, and that seems very unlikely to change following the new legislation. Fines are nothing new to many of them, with Amazon forced to pay out $1.3 billion following an Italian anti-trust lawsuit only last week.
Investors have no need to panic, as these companies all look set to continue upward trends for the future. The only thing to worry about would be repeated transgressing of the rules. Multiple fines could speak to deeper underlying problems with any particular firm, and numerous anti-trust infractions would have to be taken very seriously by any shareholder.
For now, my advice would be to hold tight and not to get too caught up in the news mill this legislation will inevitably bring with it.