Can Antitrust Control Amazon, Facebook, and Google?

Technology today exists in highly concentrated markets, dominated by a few industry titans. Most notable among these are Alphabet (the parent company of Google), Amazon, and Facebook. Consider a few statistics. In retail, Amazon sells virtually everything. Starting with books, it has extended into food, appliances, electronics, footwear, household goods, sportswear, cloud storage, movies, and virtually any other product any  consumer might wish to have. Much of Amazon’s dominance has come through 91 corporate acquisitions. Two of the most notable are Whole Foods in grocery, and Zappos in footwear. Amazon is the second largest U.S.-based corporation, measured by market capitalization. Its founder and chief shareholder, Jeff Bezos, is the world’s richest man, and has himself acquired many companies in the electronics and robotics fields. In addition, he controls the Washington Post, a major source of news for the American consumer.

Facebook is the dominant force in social media. It is the fifth largest U.S.- based corporation, measured by market capitalization. Its market domination has been fueled by acquisitions, most notably of Instagram and WhatsApp. In total, according to Professor Tim Wu, a Columbia Law School professor, it “managed to string together 67 unchallenged acquisitions.” Moreover, its CEO, Mark Zuckerberg, is the fifth wealthiest person in the world, according to Forbes.

Google, Professor Wu tells us, “got away with 214” acquisitions, including YouTube and Waze. Google dominates the important area of electronic searches, and its parent company, Alphabet, is the third largest American corporation by market capitalization. Its co-founders, Larry Page and Sergey Brin, are, respectively, the 12th and 13th wealthiest individuals in the world.

As already noted Facebook and Google were able to extend their respective market dominance by acquiring actual or potential rivals. Especially significant were the acquisitions of Instagram and WhatsApp by Facebook. Many market analysts viewed these as major corporate rivals to Facebook in the messaging area. One business analyst, Nicholas Carlson, pointed out that Instagram “allows people to do what they like to do on Facebook easier and faster.” These two acquisitions gave Facebook control over three of the largest messaging services in the world, with a combined total of more than 2 1/2 billion users. Recently, Facebook was discovered to have plans to integrate all three of these messengering services.

Google, in turn, having had a weak entry into the video space with its Google Video, decided to acquire YouTube, its much larger competitor in this area.

Where was antitrust when all this was happening? As Professor Wu and others have pointed out, the regulators declined to oppose these mergers. Why? As these commentators have noted, antitrust has shifted, under the influence of the Chicago School of Economics and Professor and Judge Robert Bork, from an emphasis on  market concentration and protection of competition, to one on consumer welfare, based on the impact of a particular acquisition on the prices of the products or services implicated.

Even more difficult for antitrust are those mergers, typified by Amazon’s purchase of Whole Foods, which permit corporations with market dominance in one or more areas to enter other areas. Since there were many other national grocery store chains in that space, as well as WalMart’s entry, it was difficult to conclude that Amazon’s acquisition of Whole Foods would itself substantially lessen competition among grocery chains.

Given these obstacles in current antitrust theory, what then is antitrust to do regarding further market concentration and individual firm dominance over important areas in technology? There are several ideas that have been suggested.

  1. Litigation seeking to break up a dominant corporation.

Harking back to the famous Standard Oil litigation, commentators have pointed out that big case litigation seeking to break up a dominant firm has been successful in fostering competition in the past. The AT&T and Microsoft litigations are more recent cases in point. Professor Wu notes that the AT&T litigation permitted new technologies to develop, including online and internet service providers, while the Microsoft case permitted new web browsers to emerge, giving space for Google’s search engine. Indeed, one of the lawyers in the Microsoft case observed that “The trial is the remedy.”

Even where these litigations did not result in a break up order, they nevertheless had important anti-concentration results. The IBM litigation shows this, because IBM stopped much of its anticompetitive conduct, permitting the emergence, as Professor Wu tells us, of independent software, personal computers, and of rivals like Apple and Microsoft.

This approach of break up litigation would work best in the context of Facebook’s acquisition of WhatsApp and Instagram, acquisitions which many commentators have pointed out should have been challenged because of their impact on actual or potential competition in the social media area.

2.  Revivifying old antitrust precedent.

A number of commentators have called for a return to older antitrust precedent. Those cases focussed on market concentration and the protection of competition (not of competitors), rather than on the resulting pricing to the consumer. Thus, if pricing is the focus, Amazon can defeat most attempts to bar it from making a particular acquisition, noting that the prices of books and other commodities it sells are typically, but not always (think of books of small publishers or products of smaller manufacturers), lower than other participants are charging in the relevant markets.

3.  Legal presumptions.

Yet another approach would be to legislate certain presumptions which would put the burden of proof on a dominant corporation to justify a new acquisition. The Federal Trade Commission could hold hearings to develop a standard, based upon such measures as market capitalization or sales volume, which would trigger a presumption against further acquisitions by corporations which hit that size.

The prospects of these three companies becoming so powerful that they eliminate virtually all potential competition in the fields over which they dominate; threaten the privacy of their users; and even have the potential power to corrupt the political process, also suggest that legislation or rulemaking to flesh out what constitutes unfair methods of competition or proper merger analysis should be seriously explored.

References:

Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018)

Mike Isaac, “Zuckerberg Plans to Integrate WhatsApp, Instagram and Facebook Messenger,” New York Times, January 25, 2019.

David Streitfeld, “Amazon’s Antitrust Antagonist Has a Breakthrough Idea,” New York Times, September 7, 2018.

Lloyd Zingales, “Should We Regulate Big Tech?”, Imprimis, November 2018.

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