Big Tech in the Dock: Trust-busters have to confront consumer benefit standard

On June 6, 2019, Gene Kimmelman, CEO of Public Knowledge and Carl Szabo VP of NetChoice, discuss the possibility of a Big Tech antitrust push by Congress against Google, Facebook, and Amazon. Image: AP

Who says Google and

Facebook

can’t bring people together? Distrust of Big Tech is uniting the populist left and right, and perhaps antitrust regulators in the Trump Administration who now plan to investigate the giants. Some scrutiny is warranted, but the formation of a political posse is the moment to remember that antitrust is governed by law that focuses on consumer benefit not merely business size.

“Break Up Big Tech” has become popular amid the public outcry over privacy incursions, fake news, toxic masculinity and leftwing bias, among other political offenses. Government competition regulators have decided to divide up jurisdiction for review, with Justice probing Google parent Alphabet and

Apple

while the Federal Trade Commission examines Facebook and Amazon.

***

They have their work cut out. Start with the fact—ignored by politicians—that each potential case is complex since the giants compete across a matrix of markets, and monopolies are often in the eye of the regulator. Google controls 90% of worldwide search, 75% of smartphone operating systems, 67% of desktop browsers and 37% of digital advertising. Facebook is the leading social network but competes on different levels with

Twitter
,

Snap, LinkedIn, Skype, YouTube and Apple’s messaging apps.

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Companies can achieve market dominance by building superior products or knee-capping competitors or both. Google and Facebook use ad revenue to provide free products to consumers and gain an advantage in other markets. Search ad revenue subsidizes Google’s free Android operating system and Gmail as well as investment in self-driving cars and drones.

European Union Competition Commissioner Margrethe Vestager last year complained that Google required handset makers to preload its search and web browser apps on Android phones, which supposedly hurt competitors. But consumers could download alternative apps, so Google’s practices don’t block competitors even if they assist its dominance.

Businesses often bundle products or use their cash cows to provide other services to customers at lower cost, which can help them break into new markets and unseat leaders. This has never been considered anti-competitive, but “network effects” in technology can create steeper barriers to entry that may deserve antitrust attention.

The line between pro- and anti-competitive conduct can be blurry. After investigating Google in 2012, FTC staff found that the search engine promoted its own shopping, local travel and other sites over rivals. Google also scraped content from competitor sites. But the FTC declined to sue after concluding Google’s practices improved search results for users.

Google also appropriates the content of publishers like this newspaper for its search results, which reduces clicks on their sites and their ad revenue. While Google claims its search results reduce “friction” for users by creating a one-stop-shop for information, squeezing competitors could ultimately limit the universe of content and consumer choice.

Google relies on algorithms to pull information from other sites to answer queries. But its search results can be misleading, incomplete or biased. In addition to considering quantitative factors, regulators may need to perform qualitative analyses that involve value judgments. For instance, do consumers benefit more from quick answers or more complete information? For these reasons and its dominance in search and ad technology, Google may be the most vulnerable on antitrust grounds.

Amazon is a different story. Some retailers complain that Amazon promotes its own products and private-labels over third-party retailers that sell their wares on its site. But Amazon lets customers search for products based on price, brand and keywords, among other filters. Third-party retailers also benefit from Amazon’s marketplace, which gives them access to billions of customers worldwide.

Amazon accounts for about half of online purchases and has surpassed most brick-and-mortar retailers by offering lower prices and fast delivery. After

Walmart

and Target started offering free two-day shipments, Amazon rolled out free one-day delivery for its Prime members. In the digital age, market dominance may be fleeting—MySpace RIP—so tech giants are building moats with new products.

Facebook fended off competition in social media by buying Instagram and WhatsApp, but its number of users is plateauing in Europe and the U.S. Thus, it is developing private messaging and payment apps including a new cryptocurrency to compete with Apple and allowing users to buy products advertised on Instagram.

Google is Amazon’s top competitor in product search, but Amazon is beginning to chip away at Google in advertising. Google recently unveiled a $400 smartphone to compete with the iPhone. But Apple has announced it will provide apps with a log-in alternative to Google and Facebook that will substantially limit the duo’s access to user data.

One lesson is to be careful because antitrust action and regulation can boomerang. The feds snuffed out emerging competition from Apple in e-books several years ago, and now Amazon is more dominant than ever. Privacy regulation in Europe already seems to be helping Google and Facebook.

***

During the 1970s the great Robert Bork led a paradigm shift in U.S. antitrust law by focusing on consumer welfare rather than mere harm to competitors. Many on the left now want to throw out that consumer-benefit standard so government can help business competitors.

But bureaucrats have a bad record of assessing markets or predicting change. Trust-busters spent seven years chasing

IBM

even as its mainframe computer dominance was eclipsed by the PC era. The web-browser pursuit of

Microsoft

ended in a legal stalemate even as the era of internet search and cloud computing were dawning. Antitrust law should punish clear predatory behavior, not bigness for its own sake.

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