Regulating big tech

Here’s what we need to consider in developing anti-trust policy.

Arkansas Democrat-Gazette anti-trust illustration.

After years of relative quiet, antitrust law and policy are back in the public eye. The Trump administration has targeted large technology-based firms for antitrust scrutiny.

When she was running for president, Sen. Elizabeth Warren (D-Mass.) proposed a plan to break up big tech companies and regulate them as utilities; other Democratic candidates echoed her sentiments, if not her specificity.

Discussions of antitrust policy are clouded, however, by common myths about this century-old but widely misunderstood area of the law. Here are five of them.

  1. Monopolies are illegal.

The Sherman Antitrust Act of 1890 "criminalized monopoly,"writes the Open Markets Institute in a primer on "monopoly basics." A Motley Fool article asserts the common misperception that "pure monopolies are illegal." Yet the antitrust laws do not outlaw the possession of a monopoly.

That's because antitrust recognizes that the potential for economic rewards is what incentivizes investment and risk-taking. The resulting competition for marketplace supremacy can be fierce, and weaker firms often fail along the way. Those left standing should not be punished for their success, even if only one survives.

As the Supreme Court said more than 50 years ago, monopolies should be targets of antitrust enforcement only when there is "the willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident."

Antitrust doesn't condemn a firm for developing a universally popular search engine, ketchup or pharmaceutical drug, even if that success leads to market dominance. It's how a monopoly is obtained or preserved that matters, not its mere existence.

  1. Antitrust protects smaller firms from their big rivals.

Much rhetoric around antitrust law takes for granted that it's about protecting the small guys. "Amazon crushes small companies by copying the goods they sell on the Amazon

Marketplace and then selling its own branded version," according to Warren's antitrust plan.

Indeed, small competitors are often the most vocal advocates for using antitrust to restrain their large, powerful rivals, as when local taxi companies unsuccessfully tried to block Uber's entry into Philadelphia, even though Uber increased competition and lowered prices for consumers.

But the antitrust laws were enacted to protect competition, not competitors. As the Supreme Court has said, their purpose "is not to protect businesses from the working of the market; it is to protect the public from the failure of the market."

Consumers are the main beneficiaries of competition, and antitrust is intended to protect them from business conduct that damages such competition. Knowing this, enforcers and courts tend to take competitors' complaints about their rivals' behavior with a grain of salt and focus on the impact on consumers.

  1. Antitrust laws are too old to be relevant to the tech economy.

Axios recently remarked on the "bipartisan consensus ... that antitrust law is antiquated, written for an analog world of railroad and tobacco giants." In the same spirit, Rep. David Cicilline (D.-R.I.) has said the antitrust laws were mainly created "during the railroad monopolies and in the time of the oil barons. It's a different economy now."

It's certainly true that many of the companies--and whole industries--drawing antitrust attention today didn't exist when the first antitrust law, the Sherman Act, was passed. Does this mean antitrust doctrine can't be effectively applied to 21st-century technologies and business models, including high-tech services (such as Internet search) that are nominally free?

In truth, the antitrust laws are no more "outdated" than the (much older) U.S. Constitution: Both employ an economy of language and establish broad principles that can be adapted to specific cases. In traditional industries like retail, antitrust analysis has long had to evolve to deal with shifting forms of competition, from local grocers to big-box stores to, now, online retailing.

In the 1990s, there were concerns that Microsoft, the tech behemoth of the times, and its complex new products (browsers, operating systems) were beyond antitrust's comprehension. Yet the Justice Department prosecuted a successful case challenging Microsoft's unlawful actions to exclude competition and preserve its monopoly position.

Antitrust enforcers have a track record of challenging mergers and other practices involving new-economy issues, such as competition among digital platforms, as when the Federal Trade Commission sued to block the merger of fantasy-sports platforms DraftKings and FanDuel. Enforcers and courts will continue to grapple with precisely how to apply antitrust to new aspects of the tech economy, but they have shown that antitrust has the tools to be relevant.

  1. Antitrust enforcers are asleep at the switch.

A narrative has emerged that U.S. antitrust enforcers have gone soft. The Economist has called antitrust authorities "unforgivably lax." A report from the Roosevelt Institute recently included "lax competition policy" among the factors that were "entrenching the intrinsic advantages of wealth and power in society." This story line has been used to support calls for more aggressive enforcement and the passage of new, tougher antitrust legislation.

Whether the American economy has become less competitive over time is a complex issue that economists continue to study. But whether merger enforcement has become increasingly slack is a more easily answerable empirical question. A study one of us co-conducted, drawing on government enforcement data from 1979 through 2017, found that regulators have become more likely to challenge proposed mergers over time. Indeed, controlling for the number of merger proposals submitted to the agencies, the likelihood of a merger challenge has more than doubled over this period.

Advocates for more aggressive merger enforcement may point to particular mergers that they believe should have been challenged (such as Facebook's acquisition of Instagram), and the FTC recently announced that it is looking back at past tech deals to see if any problematic ones escaped notice. But the data does not support the idea that antitrust merger enforcement has declined.

  1. Antitrust enforcement can fix many tech-sector problems.

Some critics of Big Tech, including Sen. Josh Hawley (R-Mo.) say that issues such as privacy lapses on large tech platforms ought to attract the attention of antitrust enforcers: "One of the reasons data privacy concerns are so pressing is because these companies are monopoly size," Hawley has said. Mississippi's attorney general has said that law enforcement officials' "focus is going to be on antitrust and privacy. That's where our laws are." Many people have concerns about privacy, data security and the veracity of online content, among other issues. Don't such worries, along with the size and power of these firms, make antitrust an obvious solution?

The link between alleged anticompetitive behavior and other questionable actions by platforms is far from clear, however. Antitrust is narrowly tailored--as the Supreme Court has reaffirmed in decisions reflecting consensus across the court's ideological spectrum--to protect consumers from business conduct that harms the competitive process itself. The question courts will ask, therefore, is whether dubious behavior by companies results from diminished market rivalry, or rather, perhaps, from firms' independently following business models that tend to lead to controversial practices.

They will probe whether lapses in privacy and data security stem from reduced competition, or whether they might exist even if there were three search behemoths, a couple of Facebook clones and several Amazon rivals. (Jeff Bezos, the chief executive of Amazon, owns The Washington Post.)

Depending on how such questions are answered, antitrust may have a role to play. But other regulatory and legislative approaches may be more suitable. If you want to protect privacy, in other words, it may be more effective to regulate it directly than to stretch antitrust law.

John W. Mayo is the Elsa Carlson McDonough chair of business administration, and a professor of economics, business and public policy at Georgetown University. Mark Whitener, an adjunct professor and senior industry and innovation fellow at Georgetown's Center for Business and Public Policy, is a former enforcement official at the Federal Trade Commission.

Editorial on 03/29/2020