Should We Break Up Tech Giants like Google? Antitrust and Digital Platforms

The Capitol Forum partnered with New America to host a conference on anti-trust and digital platforms on June 30. The event focused on the growing dominance and consolidation of market share by tech giants and the role of regulation in this industry. The three panel discussions focused on free market perspectives of digital platform competition, the effect of completion law on market dynamics, and the biggest challenges for companies in the face of regulatory scrutiny.

The conversation comes after the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights claimed in a March hearing that the Federal Trade Commission (FTC) and the Department of Justice (DOJ) antitrust divisions are failing to enforce an Executive Order from the White House as well as legislation meant to increase competition and better inform consumers.

On June 29, Sen. Elizabeth Warren (D-MA) delivered a keynote address on addressing the growing need for competitiveness in may industries from banking and airlines to broadband and technology. She said, “Google, Apple, Amazon have made disruptive technologies that change the world and everyday they deliver enormous value. They deserve to be highly profitable and highly successful, but the opportunity to compete must remain open for new entrants and smaller competitors who want their chance to change the world.” Warren pushed for renewed action in anti-merger legislation and better enforcement of existing laws.

Echoing Warren’s basic sentiment, many speakers want to see a more competitive and innovative tech industry in the United States (though don’t all have the same ideas about how to get there). Chip Pickering, CEO of INCOMPAS and a former Republican Congressman from Mississippi, outlined the major principles by he believes government should regulate to create competitive markets. He advocated for small, proactive policies that encourage interoperability, interconnection, and market structures. Interoperability focuses on devices and software being compatible with one another across platforms. The increased ability to port applications and run different operating systems increases completion in the marketplace and consumer choice. Interconnection is competition in content; so, producers like Netflix don’t get advantages in the bandwidth market over smaller producers. Finally, creating market structures that foster competition facilitates innovation. For instance, he cites the Reagan administration’s 1984 break-up of AT&T as being one of the most consequential actions for the American telecommunications industry and the expansion of a global communications network.

Some of the later speakers, however, were a little more skeptical. Logan Breed of Hogan Lovells argued that older antitrust laws are difficult to apply to these new digital platforms. The technology industry is challenging to regulate, because it is like nothing that has come before. The dominance of tech companies in their respective niche doesn’t fit into the traditional box of a monopoly. For one thing, a classic sign of a monopolist is engaging in price fixing and overcharging consumers for products because a singular company holds a large stake in the market. However, many tech companies offer their products for free; Facebook has no monthly subscription and Google doesn’t charge users on a per search basis.

Other major differences include the lack of lasting market power and ambiguous barriers to entry. Michael Petricone, Senior Vice President of Government and Regulatory Affairs at the Consumer Technology Association, referenced the Time Warner-AOL merger that many believed would result in a digital monolith. The same was true for MySpace and Yahoo Search, which were quickly dethroned by Facebook and Google, respectively. The tech industry is both dynamic and fast moving, and it’s challenging to foresee which companies are durable enough to last through the next decade. With past monopolies like electricity, the barriers to entry were clear in that infrastructure was necessary to participate. Google, on the other hand, is completely different. Theoretically, a programmer could write the software for a new search engine to outcompete Google. However, this is improbable without the massive amounts of data that Alphabet Inc. maintains to assist the search engine’s algorithm. Many of these digital products are ‘black boxes’. It is near impossible to find one anticompetitive line of code in a list of millions and that is under the assumption that Facebook and Google ever release their algorithms, which provide the basis for their competitiveness in their respective industries.

Just defining what a tech company is and whom it serves can be a challenge. Andrew Gavil, a Professor of Law at Howard University, spoke to how big tech companies could potentially be in the business of big data, selling goods and services, or the facilitation of advertising. Platforms such as Apple have many different “customers.” Some policies could benefit advertisers and app developers, but could make services worse for end users. These cross platform companies have to decide which stakeholder groups to prioritize and regulators have to keep that in mind.

Controversy also emerged over when regulatory agencies should step in. Many critics claim Amazon sold books at or below cost to drive demand towards the Kindle and away from brick and mortar bookstores. This pricing drives down prices for consumers, but also means that publishing houses do not have the capital to invest in new or experimental authors. Furthermore, Amazon pays self-publishers far less and demands exclusivity clauses in contracts, or else authors might get lost in the search results. In this day and age, being on the 10th page is the same as not being on the site at all. Similarly, Apple had to pay a $450 million settlement over price fixing in the eBook market in 2013.

On the other hand, all of this new technology provides immense value. Many new apps offer services that many of us can’t live without, and often for no cost. Petricone talked about how technology facilitates the creation of small business unlike ever before. Uber, Lyft, and Airbnb mean that if you own a car or have a spare room, you can be an entrepreneur. Apps like Yelp allow small restaurants or other businesses with no marketing budget to bring in more customers and stay competitive. Sites like YouTube and SoundCloud empower up and coming artists to get their content out there. Consolidation of market power comes at a cost, though. In many of these cases, small producers sacrifice opportunity and access for profit margins.

The general consensus is that somewhere there exists a balance, of the right amount of regulation with innovation. However, under-enforcement has the potential to lock out startups and competition; over-enforcement, especially without justification, protects less efficient competitors and gives the consumer less choice.

The final concern at the conference revolved around the European Union’s signal that they may bring a third investigation against Google for its advertising dominance.

For the most part, the experts felt the Union’s decision would not inspire similar cases on this side of the Atlantic. For one thing, most of the complaints raised by the EU have already been considered and rejected, according to Matt Schruers of the Computer & Communications Industry Association.

Gavil said, “the U.S. has the most permissive legal standards in the world.” In the United States, antitrust cases must prove both that a company has dominance in terms of market share, but also engages in deliberate anticompetitive actions to limit others from the operating in the market. There is a stark difference in both substance and process between the two legal systems.

Abigail Slater of the Internet Association, a lobbying organization working to protect a free and open Internet, looked at the issue from a different perspective. She says antitrust agencies are often scrambling for resources in this country. Sometimes a settlement is a more efficient outcome for the agency, but not necessarily the right one. Schruers continued by referencing how settlement deals could get partial action whereas a lost suit could be both expensive and leave the government regulators with nothing. He referred to net neutrality clauses in broadband settlements as one such success.

That isn’t to say that new lawsuits are impossible, though. Scott Sher, a partner at Wilson Sonsini Goodrich & Rosati which represents Google, says that decisions in Europe often lead to similar cases in other jurisdictions, such as India.

These tech giants are relatively young and government regulation still hasn’t caught up with them. Twenty years back, Amazon was still just a bookstore, and the first generation of iPhones shipped less than a decade ago. We take for granted many of the goods and services these new companies have brought us, but balanced regulation is key to protecting consumer privacy, safety, and welfare.

The full recording of all the discussions will be posted on The Capitol Forum’s website soon.

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