Beginning Tuesday the 16th the House held hearings with the largest tech firms in the US to see whether or not the companies hold too much power over the market. Executives from Amazon, Apple, Facebook, and Google sat down before a bipartisan committee of lawmakers concerned about the business practices of these tech giants and whether they actively engage in creating a disadvantage for smaller companies. The Committee also looked into Facebook’s Libra coin.
The executives from these tech firms including, Nate Sutton, associate general counsel at Amazon, Matt Perault, head of global policy development at Facebook, Kyle Andeer, Apple vice president for corporate law, and Adam Cohen, director of economic policy for Google were sat before Congress to defend their business policy and how they do not foster market conditions that disallows competition.
In the past, the government took a passive approach to the regulation of big tech companies, like Facebook, Amazon, Apple, and Google, as they constantly grew and put competitors out of business. But now that’s changing as antitrust probes brought on by the Justice Department and FTC are looking into the anticompetitive market these companies hold.
The DoJ is looking into Google and Apple while the FTC is focusing on Facebook and Amazon, in addition, the House Democrats are launching their own antitrust probe to look into competition within these tech industries
The hearings were announced last month, when the bipartisan House Judiciary Committee began their probe into the digital marketplace. While each side of the aisle has their own set of concerns, there has been an overwhelming interest in whether each company exercises their power to manipulate market conditions in their favor. While the US antitrust action and subsequent investigations are recent developments, the European Union has been battling search engine giant Google for years.
Google has been fined 4.3 billion euros by the EU for unfair prioritization of its own services in internet search. According to the New York Times, Margrethe Vestager, Europe’s antitrust chief said, “Google has used Android as a vehicle to cement the dominance of its search engine.” as well as, “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.”
The size of the fine, she added, “reflects the seriousness and the sustained nature” of Google’s actions. Google said it would appeal the decision, and the case is very likely to drag on for years. The company must deposit the fine in a holding account while the legal process unfolds. If Google ultimately loses an appeal, the money will be distributed among the European Union’s member states.
The EU warned US lawmakers that it will be an uphill battle to get these tech giants to change their practices, especially in light of any tangible evidence of wrongdoing.
Ioannis Lianos, a professor of global competition law and public policy at University College London weighed in, stating “There’s a lot of pressure in the United States to act… but case law is more demanding for the plaintiff to bring evidence of consumer harm compared to in Europe.”
This has not deterred lawmakers from both parties looking into the practices of these companies, although for different reasons. Connecticut Senator Richard Blumenthal stated in a tweet, “Stiff DOJ scrutiny is overdue. Google mines and monetizes data from each facet of our lives. It’s apparent predatory practices – exploiting its behemoth power – stifle innovators and crush competitors, harming consumers. Backbone is needed to provide greater consumer choice.”
In a press release, Senator Ted Cruz stated that Google uses its power to silence dissenting opinion, stating, “Google is a monopoly. Google may well be the most powerful company on the face of the planet because they have a monopoly on information, on what you know and what I know. And not only that, but Google owns YouTube, which is the second most popular website on the face of the planet. And the problem is, they use monopoly power to silence voices they don’t like.”
Stacy Mitchell, co-director of the Institute for Local Self-Reliance yields optimism over the progress that will be made through the hearings, stating, “Congress often responds to concerns by holding hearings that, in many cases, don’t go anywhere. This is different. This is a months-long investigation that involves not only hearings, but deep research… The nature of this is much more substation that what I think the public is typically used to seeing with some of the hearings.”
Senator Joe Neguse asked Facebook rep. Matt Perault if he considered facebook a monopoly. Although it is true that Facebook owns 4 of the top 6 spots in social media services, the growth of new competitors has made headlines. Chinese competitor Tiktok became the 6th most downloaded app in the world in Q1 of 2018.
Tiktok, which was released in 2016, is steadily closing the gap on Instagram. A report on Influencer Marketing Hub wrote, “Although it hasn’t yet surpassed Instagram in terms of active users, it received a lot more downloads during 2018 so the gap might close very soon. While Instagram had 444 million new downloads, TikTok received 663 million – a difference of over 200 million.” At the hearing Senator Pramila Jayapal questioned Amazon’s Nate Sutton on how they are using seller data. Amazon is currently being investigated by the EU over the same accusation.
Founder of social media network MeWe wrote in the Wall Street Journal that Facebook is not a monopoly, pointing to his own platform as an example of competition. Weinstein says, “The way to keep social media truly competitive is not to break up Facebook but to reinstate net neutrality. That would even the playing field and allow startups to compete on equal footing with giants like Facebook and Google. If internet service providers start charging for special privileges such as internet “fast lanes,” deep-pocketed companies would be able to squeeze out smaller competitors that can’t afford such costs.”
Weinstein claims one reason Facebook is vulnerable to competition is that its business practices are off-putting to social-media users. According to a 2018 Pew survey, 44% of users 18 to 29 deleted Facebook the prior year. Kara Swisher a tech journalist who interviewed some democratic presidential candidates on big tech, spoke about her feelings on the vergecast.
Investigations are still ongoing but some legal experts are already casting doubt saying that antitrust is particularly hard to prove in the U.S. In an article from Reuters, Chris Sagers, a professor of antitrust law at Cleveland State University said, “It is difficult to show a violation of U.S. antitrust law, It is not enough for regulators to establish that a company has monopoly power. They must also show anticompetitive conduct - an abuse of that dominant position aimed at bypassing fair competition. You can get a monopoly just by being a good competitor and that’s fine.”
Economically, digital platforms drive their own market dominance, meaning the problem is more complex than violations of antitrust laws. Amazon and Facebook benefit from “network effects”: as the number of users increase, so do the benefits of users being on the platform. These companies also benefit from widespread consumer behavior like “bounded rationality,” where instead of choosing the best option, people choose based on convenience. This makes the competitive marketplace increasingly difficult to break into against these household names.
The tricky part about antitrust is that it’s only taking into consideration specific violations of the law rather than market conditions. The laws exist to prevent mergers that would harm competition and to stop anticompetitive behavior from continuing, not to increase competition. On top of that, the FTC and the Justice Department have to bring cases to court in order to enforce decisions. To increase actual competition, they want a new regulatory agency to monitor these companies and their behavior. We don’t currently know what kinds of regulations will come about after these probes, the main idea around these big tech companies is to break them up into smaller, more independent entities.
This breakup would take place by undoing previous mergers, such as Amazon’s acquiring of Whole Foods, Facebook’s possession of Instagram, and Google’s acquirement of Youtube. However some economic experts are unconvinced that using antitrust laws to break up big tech would solve the problem of privacy for citizens and lawmakers.
Diana Moss, president of the American Antitrust Institute, a nonprofit that promotes antitrust enforcement believes “Putting the fix upfront, in proposing a breakup, sort of skips through a lot of really, really key questions. That may not actually end up being the best remedy that would restore competition to markets and protect innovators and consumers and workers.”
While taking apart previous business mergers from these big tech companies may seem simple, a lot of work would have to go into evaluating the mergers based on the effect of prices for consumers. Since Amazon purchased Whole Foods, the prices on some grocery items dropped, but this doesn’t necessarily mean the acquisition didn’t impact innovation in the grocery market. The problem these regulators see is the inability for smaller grocery startups or stores to grow in order to be a competitor with a store like Whole Foods. Breaking up large corporations and unwinding mergers are rare and difficult for regulators.
Former chief counsel in the antitrust division of the Justice Department, Gene Kimmelman and former staff attorney in the Bureau of Competition at the FTC, Charlotte Slaiman wrote in Fortune: “Without dynamic competition, where new competitors actually pose a threat to the market position of incumbents, economists expect less innovation, higher prices, and lower product quality. And you don’t need an economist’s perspective to see the obvious harms: less consumer choice and limited opportunity for entrepreneurs.”
According to a March report from a digital competition expert panel, commissioned by the UK Chancellor of the Exchequer and the Secretary of State for Business, Energy, and Industrial Strategy, digital markets are subject to “tipping,” in which one company can take most of the market. Tipping can occur when a certain scale is reached, driven by a combination of scale and scope; network externalities whether on the side of the consumer or seller; integration of products, services, and hardware; behavioral limitations on the part of consumers, among more.
The report also states that competition for the market can’t be counted on by itself to solve the tipping problem, especially during the technological revolution around artificial intelligence and machine learning. Government policies also have limitations when it comes to developing regulations. The process for changing policy is slow, and enforcement can be unpredictable, and regulators and policymakers are at an informational disadvantage compared to tech companies.
Kimmelman and Slaiman suggest a new expert regulator which congress could give tools to promote entry and expansion in digital markets. A starting point they recommend is interoperability, requiring dominant platforms to work with other competing services. They point to the 1982 breakup of AT&T, where new competitors were allowed interconnection-- allowing them to access the dominant network. In cases where digital platforms compete on their own platform, like Amazon competing with other retailers using its marketplace, they suggest preventing the platform from favoring their own brands over their competitors. They suggest regulators could also block contract terms that require a company to do business at the expense of handing over customer data for the platform to use however it wants.
Kimmelman and Slaiman also say that “Digital platforms know that companies that use their platform can “disintermediate” them by connecting directly with the consumer, effectively cutting out the platform middleman. This means platforms might discriminate against companies that pose a competitive threat, or use data to disadvantage them. By prohibiting these tactics, we can give potential competitors a fighting chance.”
Slaiman told Wired, “I’ve been in those meetings. It’s difficult to try to figure out what parts of the business need to go with the broken off entity in order for it to be successful.” Network effects occur when increased usage of certain products or services by consumers simultaneously increases the product or service's value for other users, and could potentially make splitting off parts of Facebook ineffective for innovation. Since Facebook is an established brand, it is hard for newer social media sites to compete. Many believe if Instagram is split from Facebook, it could still be just as dominant as Facebook in the market and wouldn’t fix the problem. Slaiman believes, “Breaking up Facebook without anything else probably isn’t going to solve that problem, because you might have a monopoly just re-emerge through that network effect.”
Maurice Stucke, a professor at the University of Tennessee College of Law and a former trial attorney at the DOJ’s antitrust division believes the government hasn’t done enough to evaluate their decision’s effectiveness after action is taken, “You’ve basically got a weather person who never goes outside to see whether their prediction is correct. The agencies should be far more rigorous in going back and looking at the competitive risks of the mergers they allowed.” These antitrust laws address the problem of competition within the tech market but doesn’t focus on how the sites handle consumer data as much as the public wishes. To handle issues such as privacy, the government will need to use tools separate from antitrust legislature. “There’s no silver bullet,” says Stucke. “You really need to have a coordination among privacy, consumer protection, and antitrust policies.”
Tech companies have been self-regulated for years, there aren’t federal privacy laws they need to follow, however state laws are beginning to come into effect. The New York Privacy Act was introduced by Senator Kevin Thomas back in May and gives residents more control over their data than any other state. The bill requires companies to disclose their methods of de-identifying personal information, to place special safeguards around data sharing and to allow consumers to obtain the names of all entities with whom their information is shared; creates a special account to fund a new office of privacy and data protection.
To broadly regulate companies like Google, Facebook and Amazon, the government needs to pass new laws, or potentially create a new agency comparable to the FCC but is focused specifically on the practices of digital entities on their respective platforms. It could be difficult to pass laws to better regulate big tech companies intense industry lobbying, according to Bloomberg, but many politicians agree that big tech have accumulated too much power, having influence over what we buy, what we see, and our communication with others. Breaking them up into separate parts might not fix these problems, which is why many are calling upon the U.S government to take action to fix these issues.