The case for why Big Tech is violating antitrust laws

If you think an antitrust law passed over a century ago couldn't possibly address the problems of the digital era, you're wrong. Much like our Constitution, the Sherman Act was written broadly enough to handle whatever the future might hold.

The Sherman Act was created to combat juggernauts that ruled entire industries like oil and railroads. It was made precisely for the highly concentrated power we see today in Big Tech. When passing the law, Senator John Sherman declared, "If we would not submit to an emperor, we should not submit to an autocrat of trade..."

Why, then, isn't anything being done about Big Tech violating the Sherman Act? In recent decades, corporate defendants have persuaded judges to narrow the law, by requiring, for instance, evidence of price increases to prove a case. But consumers pay for tech platforms' services with data, not dollars. The Sherman Act makes no mention of prices, and low prices should not be the only goal. Competition should be the goal. Competition maximizes consumer choice, innovation and quality, and combats the concentration of economic and political power.

Being big on its own does not violate the Sherman Act. To do so, a company must also have acquired or maintained its monopoly power using exclusionary conduct. Monopoly power is the ability to control prices or exclude competition for a particular product or service.

Google (GOOGL), Facebook (FB) and Amazon (AMZN) have monopoly power in their respective markets. A market for antitrust purposes includes only those options that consumers would switch to when prices went up or quality went down a small amount.

Each tech company maintains that it does not have monopoly power, despite the examples below of their power to exclude competition. The platforms define the markets they operate in broadly, as in "all e-commerce," "all social media," or "all mobile operating systems," rather than limiting the markets to substitutes that consumers would easily switch to. Switching is important because only if consumers can readily vote with their feet do other companies competitively constrain the tech platforms.

Facebook, for example, doesn't need to have a monopoly over a market as broad as "all social media." All social media platforms are not substitutes for Facebook. You can't see baby pictures on LinkedIn, and you can't keep in touch with Grandma on Twitter. The closest substitute to Facebook is Instagram, which isn't much of a choice since Facebook owns it.

So how do the tech platforms use exclusionary conduct to acquire and maintain monopoly power? Let me count the ways.

The nearly 20-year-old case of US v. Microsoft illustrates how today's tech giants are breaking the law. The court held that Microsoft used its monopoly power in "Intel-compatible desktop PC operating systems" to squash the Netscape browser by requiring computer makers to instead install Microsoft's own Internet Explorer browser. Rather than competing on the merits, Microsoft used its monopoly power to try to take over the internet browser market. Ironically, if the Department of Justice had not sued Microsoft to stop its anticompetitive behavior, Google might not exist! After taking over the internet browser market, Microsoft could have required computer makers to use its own search engine, too.

Google, Amazon and Facebook are following the same playbook. The tech giants have "platform privilege" — the incentive and ability to prioritize their own goods and services over those of competitors that depend on their platforms. By doing so, they contend they are improving their products and benefiting customers. An entrepreneur can create a superior product or service and still get crushed because Big Tech is controlling the game and playing it, too.

This distorted playing field strikes at the heart of the American Dream. And it deprives consumers of the choice, innovation and quality that comes from competition on the merits.

Just as Microsoft used its monopoly in PC operating systems to exclude competition in internet browsers, Google used its monopoly in mobile operating systems to exclude competition in mobile apps. The European Commission fined Google $5 billion in July for requiring phone makers using Android to pre-install Google's apps and not competitors' apps. The Commission said 80% of smart phones in Europe and worldwide run on the system. By closing the gates of competition, Google cemented its monopoly in mobile search. The Commission ordered Google to stop its anticompetitive conduct, but many question whether it's too little too late. Google has appealed.

The Android case followed the European Commission's Google Shopping case from a year prior, when it fined Google $2.7 billion for burying its comparison shopping competitors on page four, on average, of Google search results. The Commission found that Google used its monopoly on internet search to take over the comparison shopping market without competing on the merits. It ordered Google to give equal treatment to competing comparison shopping services and its own service. Google has made changes but some competitors say it's not complying with the decision. Google has also been accused of prioritizing its own reviews, maps, images and travel booking services in its search results, excluding competition in those markets. Google has rejected claims that it tries to hurt competitors, and has appealed this decision as well.

Amazon, too, is following the monopolist's playbook, picking and choosing which products consumers discover and determining who gets to compete on its platform, which accounts for nearly one out of every two dollars spent online. Amazon often excludes marketplace sellers from selling products it wants to sell and prohibits brands from selling their own products, taking the retail margin for itself. This exclusionary conduct, combined with Amazon's ability to use its competitors' data to create Amazon versions of popular products, giving them priority placement on Amazon.com, destroys competition on the merits.

Facebook, in turn, uses its platform privilege to pick and choose what content we see. Facebook competes against news publishers and content creators for consumers' time and data, the fuel for its advertising model. Profit-maximizing algorithms prioritize content that keeps you on the platform, including Facebook's own Instant Articles and content that makes you fearful and angry (or as Facebook calls it, "engaged").

Facebook's exclusionary conduct goes beyond its algorithm: Internal company documents recently made public by the UK Parliament reveal how Mark Zuckerberg moved to exclude a rival app from using Facebook integrations available to others.

On top of using their monopoly power to exclude competition and take over new markets, the tech giants have also grown through hundreds of acquisitions. Many of these deals violate the Clayton Act, Section 7, which prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."

Think Google's acquisitions of Android, YouTube, AdMob and DoubleClick, and Facebook's acquisitions of Instagram and WhatsApp. Like the Sherman Act, the Clayton Act's intent has been subverted by misguided case law.

Even though antitrust doctrine has gone off the rails, regulators cannot give up. They should bring the strongest cases possible, as court victories can help correct antitrust precedent. Losses can only do so much damage to already-crippled statutes. And Congress should also step in and fix bad court decisions so that the antitrust laws can work for all of us again.

Let's block ads! (Why?)