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All antitrust eyes are on Nvidia
The artificial intelligence boom has been transformative for Nvidia, which has become the third-most-valuable company in the world just behind Apple and Microsoft. That’s a bronze-medal performance. (We can make Olympics references for another week, folks.)
Nvidia’s chipmaker’s graphics processors and data centers are integral for anyone and everyone who wants to train or run a generative AI model. That’s true for teams at Silicon Valley giants and upstarts alike. And Nvidia is the clear market leader: By one estimate, Nvidia now controls 80% of the market for AI-grade chips and data centers, far ahead of rivals AMD and Intel.
Naturally, Nvidia’s market dominance has begun to attract scrutiny from antitrust authorities in the US, its home country, and around the world. The semiconductor giant now faces multiple antitrust probes, raising questions about whether its acquisitions and competitive practices have been fair.
The US Department of Justice is reportedly investigating the company in two separate probes: First, it’s looking into whether Nvidia’s $700 million attempted acquisition of Run:ai, an Israeli AI startup, would be anticompetitive. Second, it’s investigating complaints from competitors that Nvidia is abusing its market power. If the government sues, it could seek to block the acquisition, or demand changes to how Nvidia conducts its business.
Diana Moss, vice president and director of competition policy at the Progressive Policy Institute, says that while these investigations are significant, it’s hard to discern whether charges will be filed since such decisions are dependent on what investigators learn. She said success in business alone isn’t enough to be dinged by antitrust regulators. “The key question is about the pathway to success,” she wrote in an email. “Commercial success on the merits, i.e., by being lower cost or more innovative, draws less antitrust attention than success based on squeezing out rivals and raising prices. Antitrust enforcement targets the latter.” (For example, just yesterday, a federal judge found Google liable for abusing its own monopoly power in the online search business by cutting deals with phone suppliers like Apple and Samsung to make the Google search engine the default experience.)
The investigations into Nvidia come at a time when the US government has been actively supporting the domestic semiconductor industry through initiatives like the CHIPS Act and boxing out China through stringent export controls. But boosting the chip industry and scrutinizing one of its leaders aren’t necessarily at odds.
“The CHIPS Act is focused on the manufacturing segment of the supply chain, not necessarily designers like Nvidia,” said Xiaomeng Lu of Eurasia Group. Lu views both the support for the chip industry and the antitrust probes as “moves designed to shape the industrial landscape in a way favorable to [the] government’s strategic goals.”
Moss adds that antitrust enforcement operates somewhat independently of these other economic and national security policy priorities. “I don’t see the current administration pressuring enforcers to exercise prosecutorial discretion to stand down on enforcement regarding large US national champions,” she said.
Even if the US decides to bring a case against Nvidia, its leading chip designer, that doesn’t mean it’s going to go easy on China. “The possibility of being held liable for antitrust violations doesn’t mean ceding the field to China, any more than Microsoft being ordered to level the playing field for rival browsers and other third-party software was a fatal blow to that company,” said Mitch Stoltz, head of the antitrust working group at the Electronic Frontier Foundation.
Lu suggests that from the DOJ’s perspective, “limiting the dominant player’s power will foster more innovation and allow the emergence of a host of AI chip companies who can outperform their Chinese counterparts.”
Scott Bade of Eurasia Group points out that this dilemma is not unique to the chip industry. “It’s worth noting that this is also a common refrain with almost all tech-focused antitrust. If you want a national champion, don’t go after your leading contenders,” he said. “But the FTC has different priorities than Commerce and an independent mandate.” (The Commerce Department handles export controls as one of its many duties.)
Stoltz strongly argues against the idea of protecting “national champions” from antitrust scrutiny. “Monopolists are prone to mistreating consumers, mishandling people’s private information, and working closely with authoritarian governments no matter what country they’re located in,” he asserts.
“Building homegrown monopolists that are too big to regulate effectively isn’t ultimately any better for consumers and society than ceding the field to foreign companies with close ties to authoritarian regimes,” Stolz adds.
The decision to focus on Nvidia isn’t that of the United States alone. The French government is expected to charge the company with antitrust violations, while it’s disclosed that the UK, Europe, and China are also examining its practices.
Nvidia’s ability to weather these storms could determine how much of a foothold direct competitors can gain in the AI chip industry. Nvidia feels its market dominance has been earned and deserved, but one abuse of that monopoly power and regulators will look to take it down a peg — no matter what that means for the global chip race.
FILE PHOTO: iPhone 15 and iPhone 15 Plus are displayed during the 'Wonderlust' event at the company's headquarters in Cupertino, California, U.S. September 12, 2023.
US sues Apple over alleged smartphone monopoly
In an antitrust lawsuit filed Thursday, the Department of Justice alleged Apple’s dominance of the smartphone market amounts to a monopoly. The DOJ says Apple resorts to “delaying, degrading, or outright blocking technologies that would increase competition in the smartphone markets” to keep users reliant on its iPhone.
The iPhone’s success is the stuff of business school legend, capturing some 70% of the US smartphone market despite steep prices. In short, the DoJ’s contention is that unfair practices helped Apple get there.
Apple is denying the claims and says it will fight the lawsuit in court, but this isn’t the first time the company has faced similar legal challenges. This is its third antitrust suit in the US since 2009, and It was fined nearly $2 billion by the European Union last month for breaking fair competition laws.
Expect a tough legal fight, but if the government proves its case, there could be major changes coming to the iPhone. The complaint says Apple could shape up by ensuring full compatibility with phones, smartwatches, and digital wallets from other manufacturers, relinquishing some control over the apps that can run on iPhones, and imposing less onerous terms on users and developers.The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France, November 15, 2022.
The FTC takes on Amazon, Canadian investigation ongoing
The FTC says the online mega-retailer has engaged in a “pattern of illegal conduct” that includes blocking competitors, inflating prices, crushing innovation, and reducing market quality.
In essence, the FTC claims that Amazon traps consumers and sellers in its orbit, dominating market share and exploiting its position to undermine independent sellers and reduce choice for consumers while also using its position to drive up prices. It also alleges that Amazon games its search results to push its own products.
Amazon denies the allegations and says the lawsuit would hurt businesses and consumers alike, sending prices higher and slowing delivery speeds. It’s ready to fight back, and as a company valued at roughly $1 trillion, it has the resources to do so.
Anyone looking for a quick resolution is going to be disappointed. Canada launched an antitrust investigation into Amazon in August 2020. That probe is ongoing, and the Competition Bureau has not said when it expects to complete its work, which would precede any further action.
In 2022, the Canadian government amended its Competition Act to introduce stiffer fines and penalties for businesses that violated the law. Under the new rules, businesses like Amazon could be on the hook for as much as 3% of their annual gross revenues worldwide if found to be abusing their dominant market position, which is a lot more than the previous cap of CA$10 million.
We’re keeping an eye on how the FTC and Competition Bureau lawsuits and investigations proceed, and whether Amazon adjusts any of its practices in the meantime. It’s doubtful they will. In 2022, in Canada, the company threatened to shutter Marketplace if the government strengthened competition regulations, though it didn’t go through with the plans.