Five of the world’s largest companies by market capitalization are tech companies. In the past 10 years, Apple, Google, Amazon, and Facebook have all joined Microsoft at the top of the list.
Each of these companies dominates its primary market, and is gradually expanding its reach into secondary markets. Have they become too big? Are they full-fledged monopolies at this point? And if so, should we rein them in?
To get answers to these questions, I reached out to Sally Hubbard, a senior editor of tech antitrust enforcement at the Capitol Forum, a nonpartisan legal investigative company that offers analysis to policymakers and industry stakeholders. I asked her to walk me through the case for using antitrust laws to regulate the major tech companies.
Antitrust laws exist in order prevent monopolization, which occurs when a company so dominates a market that it effectively eliminates the possibility of competition. This is tricky when it comes to a tech company like, say, Google, which has a monopoly in the search market but not in the digital advertising market.
Antitrust enforcement, at least in the past 40 years or so, has focused on protecting consumers from high prices due to a lack of competition. But the problems created by tech monopolies are different: Consumers aren’t paying higher prices to use these platforms, but they are handing over massive amounts of personal data and allowing companies like Facebook and Google to disproportionately influence the news and information Americans consume.
We don’t need to bust up these companies, Hubbard says, but there are very good reasons to use antitrust law to promote more competition in this space. “Fake news,” she told me, “is partly an antitrust problem” because the dominant algorithms of Facebook and Google control the flow of information. If there were more competition, purveyors of fake news would have to figure out how to game more algorithms.
Our full conversation, lightly edited for clarity, appears below.
Are the big tech companies monopolies?
Sean Illing
Can you make the case to me for why big tech companies like Facebook or Amazon or Google should be treated like monopolies?
Sally Hubbard
Monopoly enforcement is often about ensuring fair competition. One of the main arguments is that these platforms have gotten so large that they actually compete with companies that depend on their platforms to exist in the marketplace. This is what I call “platform privilege,” which is really the ability to prioritize their own products over those of competitors.
We’re seeing that in the Google Shopping case that the European Union has brought, where Google allegedly gave priority to its own comparison shopping services on its dominant search engine, so that its own Google Shopping comparison shopping service showed up first and other competitors that had comparison shopping services got put on page four.
Sean Illing
So these companies have gotten so large, so influential, that they’ve distorted competition in the markets they touch?
Sally Hubbard
That’s certainly one argument. I do think a privileged platform is a distortion of competition. You don’t have a level playing field when you’re competing against the company that determines whether you even reach the universe. What we ideally want is a marketplace where these products can come and they can compete on their merits against a huge company like Google, but if Google has the power to squeeze out competitors by placing their results at the bottom of search engines, that’s a problem for innovation, for a robust marketplace that is supposed to thrive on competition.
The promise of the internet was that it was going to be a level playing field where someone could start their business in their garage and there would be opportunities for them to enter the market. If these platforms have the ability to bury a competitor, that promise is dead.
Sean Illing
Then there’s also the enormous impact these companies are having in the marketplace of ideas.
Sally Hubbard
Absolutely, and I’ve written about this recently. Companies like Facebook and Google have had an outsize effect on political discourse because of the ways their algorithms help to promote and spread fake news and propaganda. Even if it’s not their intent, their business model invariably contributes to this problem.
“Amazon is shopping around for a second headquarters. They’re literally playing local governments like pawns, and why wouldn’t they? Amazon has all the power.”
Sean Illing
All of the big five tech companies — Amazon, Google, Facebook, Microsoft, and Apple — dominate huge percentages of their markets. Are they not monopolies in classical economic terms?
Sally Hubbard
It depends on what specific market you’re looking at, because these companies are all so large. For instance, you might say that Google has a monopoly in search, but it also participates in digital advertising and it doesn’t have a monopoly in that market. It forms half of a duopoly with Facebook in digital advertising.
In order to identify whether a firm is a monopoly, you have to actually define what the relevant market is that you’re talking about. If you’re talking about the relevant market being just search, yes, Google has a clear monopoly.
However, under the antitrust laws, having a monopoly is not itself illegal. What is illegal is monopolization. Monopolization is both the possession of the monopoly power in the relevant market and the willful acquisition or maintenance of that power, which is different from growing as a consequence of just being the best.
Sean Illing
Does a company like Google meet the monopolization threshold?
Sally Hubbard
Google is a monopoly in the search market. Whether it has acquired that monopoly as a result of anti-competitive conduct is something that is a much bigger question. My bigger concern is not actually about Google’s monopoly on search but rather the different type of case that is called monopoly leveraging. That’s what we’re seeing with a lot of these companies.
They may have built their first monopoly by being the best, but then what they do is they leverage that monopoly power to take over other product markets, other lines of business that are related to that product market.
Sean Illing
For the non-economists out there, can you clarify what you mean by “monopoly leveraging?”
Sally Hubbard
Monopoly leveraging is taking your monopoly power in one market and using that power in an anti-competitive manner to create a dangerous probability of monopolizing a second market. So Google, for example, according to the EU at least, has been found to have used its monopoly power in the search market in an anti-competitive way by pushing the comparison shopping competitors down to page four of the search results in order to create a dangerous probability that its shopping service will monopolize that second market.
Why we have antitrust laws
Sean Illing
You referenced antitrust laws earlier, and obviously those are central to any debate about regulating monopolies. Why do we have antirust laws? What are they designed to facilitate or prevent?
Sally Hubbard
The current thinking is that it’s all about making sure that consumers don’t pay high prices as a result of lack of competition, or that lack of competition can reduce output. That’s been the mode of thinking of the last, say, 40 years, which was largely influenced by the Chicago School of Economics.
If you actually look at the passage of antitrust law, which was in 1890, you find that it also has a political origin. Sen. John Sherman, after whom the Sherman Antitrust Law was named, said, “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of the necessities of life.”
But the influence of the Chicago School has driven out the political roots of antitrust law. Most of the focus now is on economic factors like prices, competition, and output, all of which are important, but there are other reasons to restrain large companies.
Sean Illing
It seems to me that this is one reason why we haven’t seen any antitrust enforcement on tech companies. Because while they undoubtedly hold monopoly power in various markets and wield immense influence over our culture and politics, they haven’t put the economic squeeze on consumers. We may be drowning in fake news, but we’re not paying higher prices to use these internet platforms.
Sally Hubbard
That’s absolutely right. The recent focus on always having to prove a price effect is a reason why a lot of these techs companies have really flown under the radar and not been subject to antitrust enforcement, because the consumer side of the market at least is arguably free.
In reality, it’s not free. In reality, users are paying with their data or they’re paying with their attention, but it’s much harder to quantify these things. Because you haven’t been able to show that Google is charging high prices or Amazon is charging high prices, they’ve largely evaded any kind of meaningful antitrust enforcement.
Sean Illing
Do we need antitrust law to focus on more than high prices due to anti-competitive behavior?
Sally Hubbard
The purpose of the antitrust laws is to protect competition, and a price effect is not required for a monopolization case. Monopoly power is defined as the power to control prices or exclude competition. In addition to monopoly power, a monopolization case requires exclusionary conduct.
The last major US monopolization case was Microsoft, 18 years ago. DOJ did not allege that Microsoft’s exclusion of the Netscape browser caused higher prices. DOJ alleged that Microsoft was able to use its dominant position in the operating systems market to exclude other software developers and to prevent computer manufacturers from installing competing browsers. The EU is currently investigating Google for similar alleged conduct regarding the Android operating system.
So while there hasn’t been much monopolization enforcement, price is not the only consideration of antitrust law.
Sean Illing
We touched on the sociopolitical impact that these companies are having, and you seem to think that a problem like “fake news” is at least partly an antitrust issue. Can you explain?
Sally Hubbard
The sociopolitical concerns that people have about tech platforms having too much power and serving as information gatekeepers could actually be addressed by enforcement and policymaking that promotes competition. The first part of the problem is that Google and Facebook compete against news publishers for user attention, data, and ad dollars. They both have business incentives to keep users within their digital walls.
The second part is that because Google and Facebook lack competition, two dominant algorithms control the flow of information. So purveyors of fake news only have to exploit the weaknesses of one algorithm to potentially deceive hundreds of millions of people. Facebook has 2 billion active monthly users. Google accounts for 80 percent of internet searches worldwide.
Sean Illing
So we don’t need to bust up these companies in order to solve the fake news problem, but if we use antitrust law to promote more competition in this space, it would make it much harder to game the system.
Sally Hubbard
Right. Imagine there were five Facebooks and five Googles, all with different algorithms that competed against each other to be the best. A purveyor of fake news perhaps couldn’t have as much of an impact if it had to figure out how to game many more algorithms. Consumers could have the option of choosing the social network or search engine that put the articles that were true at the top of the newsfeed or search results (rather than the articles that got the most clicks, likes, or comments, as in the case of Facebook).
If there were robust competition in social networks and internet search engines, legitimate news publishers would have bargaining power to demand compensation or traffic in exchange for their content, giving publishers the resources that journalism requires.
“So just as we shouldn’t submit to an emperor, neither should we submit to an autocrat in trade with the power to prevent competition”
Too big to regulate?
Sean Illing
We appear to be in a legal gray area, in part because technology develops faster than law, so there’s always this lag period. But the root danger of monopolies, I’d argue, is massive centers of unaccountable private power.
Sally Hubbard
People have definitely talked about how tech platforms get so large as to be unregulatable. For instance, you can see in the news now that Amazon is shopping around for a second headquarters. They’re literally playing local governments like pawns, and why wouldn’t they? Amazon has all the power.
Recently, Spain attempted to regulate Google and say, “You have to pay for the news that you use in the Google News service.” Google just said to Spain, “You know what? We’re just not going to have Google News in Spain.” You do get to a point where it seems as if these tech companies can get so large and so powerful that even governments can’t regulate them.
Sean Illing
Aren’t we there already?
Sally Hubbard
Europe is doing it right now. Europe has some very robust antitrust enforcement happening against Google at the moment. It came out with this large decision against Google for the EU shopping case, but the fine is largely inconsequential.
People or antitrust lawyers will try to argue that European antitrust laws are so vastly different from US antitrust laws, but I think that’s overstated. I think a lot of what these tech companies are doing that’s anti-competitive now is not that different from what happened in the Microsoft antitrust case in 2001, and that US antitrust laws could cover that conduct.
We just haven’t seen any kind of aggressive enforcement from the agencies.
Sean Illing
Why do you suppose that is? Are prosecutors worried about the lack of precedents?
Sally Hubbard
That’s part of it. There is definitely some bad case law. In that monopoly leveraging claim I was referencing earlier, you have to show not only that the company has monopoly power in one market but also that it’s using that in an exclusionary manner to try to take over a second market.
In order to show that it’s actually going to have a dangerous probability of monopolizing that second market, courts have required that you show that they already have at least a 50 percent market share in that second market, which largely renders that claim useless, because by the time Google has more than a 50 percent share in a market that it’s trying to go into, the problem has already happened. It’s too late.
I also just think there’s a lack of political will. It’s really only been very recently that people even think the tech platforms are a problem. I only started writing about the tech platforms and antitrust a year and a half ago, and everyone kept asking, why would I be writing that?
Should we treat tech companies like public utilities?
Sean Illing
Should we think of tech companies as natural monopolies like public utility companies, which are basically allowed to dominate the market but the government still imposes certain conditions on their operation?
Sally Hubbard
As a former antitrust enforcer, I prefer competition over utility regulation. Some argue that Google and Facebook are natural monopolies because of network effects — where a service gains value as more people use it — but competition is still possible in my opinion. Wireless phone networks also have the advantage of network effects but still face robust competition, in part due to antitrust enforcement like the blocked AT&T/T-Mobile deal.
One way to promote competition in big tech is through stronger merger enforcement. Instagram built a thriving social network, but then Facebook bought it. The big tech platforms have collectively bought hundreds of companies, including competitive threats.
Stronger enforcement against anticompetitive conduct could also promote competition without having to resort to utility regulation. The EU’s recent decision that requires Google to give equal treatment to competing comparison shopping services in Google search results is an example. The EU is also creating rules to make it easier for new entrants to compete against big tech, such as data portability requirements.
Without increased competition, I believe that utility regulation — in the form of a nondiscrimination or neutrality regime — is very likely. Governments tend not to tolerate unregulated dominance for long. Oddly, antitrust enforcement could actually be a good thing for tech platforms because it sure beats utility regulation.
“The promise of the internet was that it was going to be a level playing field where someone could start their business in their garage and there would be opportunities for them to enter the market. If these platforms have the ability to bury a competitor, that promise is dead.”
Is greater regulation inevitable?
Sean Illing
Do you think it’s inevitable that at some point, we’ll have no choice but to restrict the growth of these tech empires?
Sally Hubbard
I think it is inevitable unless we get some more robust competition. If we don’t actively police these companies, the only alternative is to promote competition, and there are different ways to do that, like lowering the entry barriers for competitors. This is something the EU is also experimenting with.
If you’re not going to regulate them at all, or do anything to enforce against anti-competitive conduct, or to lower barriers, then you’re going to end up with a nondiscrimination standard. If you’re just going to assume they’re monopolies, you’re going to end up with a nondiscrimination standard, which is like utility regulations. If you want to avoid that, then the option is to do a combination of enforcement and regulation to promote competition and reduce entry barriers.
Sean Illing
What are the risks of breaking up these companies or otherwise imposing serious regulations on their conduct?
Sally Hubbard
In terms of breaking the companies up, that has not been done since AT&T in the ’80s, so that would be highly unusual. In terms of trying to impose some sort of a nondiscrimination remedy or neutrality standard, the main argument you hear is that it would negatively impact investment.
There are a lot of concerns from defense attorneys and from antitrust enforcers who do not want to be aggressive that when you interfere with dynamic markets, you invariably produce bad outcomes and undercut innovation. So they’d argue it’s preferable to just allow the natural disruptions that are always going to happen in the market.
That, at least, is the argument.
Sourse: breakingnews.ie
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