The dominant platforms have proven themselves to be ungovernable. Behavioral remedies, especially those that require continuous oversight, might be pushed aside. The only issue now is whether structural remedies will come via Congress or via a specialized tribunal.
Last month, I had the distinct pleasure of testifying before the House Subcommittee on Antitrust in a hearing titled “Proposals to Address Gatekeeper Power and Lower Barriers to Entry Online.” Although the digital platforms engage in myriad exclusionary conduct, a key anticompetitive strategy that seems to defy antitrust scrutiny is appropriating edge content (or “cloning”) and then steering users to the clone (or “self-preferencing”). For example, Amazon uses a third-party seller’s proprietary data to spot a top-selling product on its Marketplace, reverse-engineers it, and then promotes the clone in its coveted Buy Box. Apple and Google employ similar tactics in the App Store and general search results, respectively. The question now is how to stop it.
Just a handful of proposals dominated the hearing. Front and center was structural separation, which would require dominant platforms to spin off or shutter content divisions. If platforms were barred from having a toe in the content space, they couldn’t clone content or steer users to their affiliates (as none would exist). Structural separation would have to be supplemented with other rules that bar platforms from exercising control over content providers via contract.
Another proposal that is increasingly getting attention these days is a nondiscrimination regime, which would provide a venue, outside of antitrust, for victims of discrimination to seek injunctive relief and monetary compensation. This remedy would allow dominant platforms to keep a toe in the content space but would bar them from favoring their vertical divisions in search. For example, an independent merchant might file a discrimination complaint against Amazon, alleging that the e-commerce giant buried the independent’s product in search results, by adding unneeded peripherals to the core product so as to inflate the independent’s price relative to Amazon’s clone.
The third proposal, mandatory data portability and interoperability, would attack the platforms’ market power by giving a leg up to horizontal rivals. For example, it would compel Facebook to share its user profiles with nascent social media rivals, reducing a barrier to entry.
We Are Done Litigating Big Tech’s Competitive Harms
October’s House Majority Report on digital platforms presented, in painstaking detail, the competitive harms inflicted on trading partners (aka input providers) by the dominant platforms. The section on what Big Tech has done to journalism is a master class in research: In some cases, the harms also manifest as a short-run consumer injury (e.g., the disappearance of journalists), but in many instances, the consumer harm takes the form of an innovation loss, with no short-run price or output effect. Even the House Minority Report, authored by Ken Buck (R-CO), recognized the competitive harms inflicted by the dominant platforms.
February’s hearing was all about the remedies, which presumes that debate over whether Big Tech distorts the competitive landscape has been resolved. Rep. Hakeem Jeffries (D-NY) made the astute point (at 1:59) that deregulation may have been appropriate in the nascent days of the internet, but competitive circumstances have now changed with the emergence of dominant platforms, which warrants a change in regulatory approach. (I reviewed the competitive harms from self-preferencing in ProMarket, and the piece was cited at the hearing.)
What was so striking about the hearing was the bipartisan nature of the inquiry. Witnesses peddling all sorts of interventions met almost no resistance, including from Republicans. Indeed, Rep. Jim Jordan (R-OH) couldn’t find a Republican witness to agree with his desire (at 2:06) to pare back Section 230, even after breaking up the platforms. (He should have asked me.) At the Conservative Political Action Conference (CPAC), which took place days after the hearing, Buck called for the break up of big tech and Rep. Darrell Issa (R-CA) addressed the digital platforms as “harmful monopolies.”
Antitrust Is Not the Only Tool in the Antimonopoly Toolkit
Unlike Europe, there is no protection against abuse of dominance in the United States. This means that antitrust law can’t assist harmed trading partners unless the offender’s dominance is supported by a restraint of trade. And all too often, it must be a restraint that crosses the firm’s boundaries and results in higher consumer prices.
So while Amazon’s most-favored nation clause and requirements to purchase fulfillment service can and should be challenged under antitrust law, Amazon’s residual market power over merchants cannot. Similarly, while Apple’s exclusionary provisions in app developer contracts can be challenged under antitrust law, Apple’s residual market power over app developers cannot. Given this gap in protection, there is an urgent need to supplement antitrust enforcement with regulatory protections.
One of the witnesses called by Republicans during February’s hearing, antitrust lawyer John Thorne, suggested that antitrust was the right venue for most of these complaints, but only if the process could be accelerated. (Thorne’s testimony showed that in the Northern District of California, the median time from filing an antitrust complaint to trial in a civil case is a staggering 44.5 months.) This seems to be in line with Senator Amy Klobuchar’s (D-MN) current antitrust bill, which seeks to add an “exclusionary conduct” provision to the Clayton Act to accommodate some of Big Tech’s novel exclusionary strategies that current flies beneath antitrust’s radar.
Rather than bending antitrust’s standards, or hoping that antitrust moves faster (it won’t), my strong inclination is to combat self-preferencing outside of antitrust, where a specialized tribunal could gain experience and speed in adjudicating such claims. The House bill will likely be strikingly at odds with Senator Klobuchar’s attempt to force everything through the antitrust funnel. To her credit, however, Klobuchar recently endorsed “better safeguards on tech platforms,” including nondiscrimination rules, an acknowledgment that antitrust isn’t the only tool.
Republicans Are Sensitive to Proposals That Would Require a New Agency
The question of breaking up Big Tech versus interoperability is another cleavage in this debate. During the February hearing, Public Knowledge’s Charlotte Slaiman advocated for mandatory data portability and interoperability. Surprisingly, Tad Lipsky of the George Mason Global Antitrust Institute, who generally dismisses the competitive harms, was open to Slaiman’s suggestion. (Even Issa embraced data portability at CPAC.) Several Committee members seized upon the apparent consensus and suggested that Congress should start there. The outsized attention on interoperability caused some advocates for structural separation, such as Zephyr Teachout, to take to Twitter and decry that “Big tech has changed their strategy. They are now asking for regulation like interoperability because they are scared of breakups.” (Teachout also pointed out that Public Knowledge takes money from Google, Amazon, and Apple.)
I see two downsides to beginning with interoperability. First, it is fairly Facebook-centric. This is a good thing, in the sense that nondiscrimination—my preferred remedy—doesn’t work as readily on Facebook. Like other platforms, Facebook appropriates app functionality but, rather than steering users to its clone via a biased search algorithm, simply imbeds the cloned functionality into its base product. So the remedy to a successful discrimination complaint against Facebook is less clear. (In contrast, the remedy in the hypothetical complaint against Amazon above would be for Amazon to display the independent’s product without any peripherals.) But offering a Facebook-centric remedy is a bad thing to the extent it misses the harms inflicted by the other dominant platforms, where customer access to their old data isn’t as critical.
Second, and perhaps more fatal politically, mandatory data portability and interoperability would likely entail significant government oversight, most naturally from a regulatory agency (old or new). This rattles conservatives who, while sympathetic to the problem of entry barriers, are hostile to creating new bureaucracies. During February’s hearing, Ranking Member Ken Buck asked me (at 1:25:07), via Rep. Mike Johnson (R-LA), whether I was “suggesting a CFPB measure or creating something like that.” I assured the Congressman that the nondiscrimination regime would require only an administrative law judge and a conference room, to which he replied: “That’s music to our ears.”
We Are Heading Towards Break-up Legislation, One Way or Another
Whether nondiscrimination or interoperability, any regulatory regime that requires the platforms’ cooperation and respect for the rule of law is vulnerable to failure to the extent that the platform believes it is above the law.
Recent developments imply that certain platforms have accumulated so much economic and political power that they may not be governable, which militates in favor of cutting them down in size. Amazon preemptively sued Attorney General Letitia James of New York for having the audacity to consider new worker safety protections; Google threatened to shutter its search engine in Australia in retaliation for a new law that compels Google to share a portion of the advertising revenues it earns off the backs of newspapers; Facebook blocked links to news stories from Australian news publishers and users; and Facebook has launched its own conflicted Supreme Court. (Google and Facebook eventually reached deals with the government and certain publishers in Australia, and reneged on their retaliatory strategies.)
These acts of aggression, occurring in the weeks leading up to the hearing, will undoubtedly shape legislators’ viewpoints. Structural separation has strong bipartisan support. And this approach got a much-needed endorsement by noted antitrust economists John Kwoka and Tommaso Valletti.
Break-up legislation is coming. But who will do the carving? And when will the carving take place?
Near the end of the hearing of February’s hearing, Chairman David Cicilline (D-RI) asked Morgan Harper of the American Economic Liberties Project (at 2:56) how structural separation would be operationalized. Harper answered that Congress should write a bill that was market-specific. She also noted that behavioral remedies in Europe have largely failed.
There are two basic options: Harper’s vision (“Option A”) and my alternative (“Option B”).
Option A is that Congress does the carving, a la Glass-Steagall legislation of 1933, and specifies the firm boundaries for each platform on the front end. For example, Amazon could be compelled to shutter its private-label division (an Amazon tripod wouldn’t have much value as a standalone company) and spin-off its logistics and web hosting divisions. That Amazon provides web-hosting services to Netflix and competes against Netflix with its own film division is a slow-moving train wreck. And if its logistics division were separate, Amazon couldn’t force merchants to buy fulfillment services from Amazon at inflated prices.
Option B is that Congress empowers a tribunal to impose structural relief on the back end, as a remedy to a particular case or set of cases. For example, in cases involving a recidivist discriminator who shows no respect for the nondiscrimination regime, or where injunctive relief proves unworkable, the tribunal could require the platform to sell off its content arm or cease operations in the content space. Amazon could be sliced up the same way, but the slicing would have to address the competitive harms presented in a particular case or set of cases.
Congress generally doesn’t like to make tough decisions. And unlike Glass-Steagall, which was written to address all vertically integrated bank oligopolies, break-up legislation here would have to be specific to each monopoly platform, which could raise legal issues. So if I had to bet on which of these two proposals would garner enough support to pass the House and Senate, I’d pick Option B.
Ideally, Option A would be presented first to Congress. If it passes, we are done. But if A fails, Option B would be a nice fallback. However things unfold, the House will likely call for a Big Tech break up in some fashion. The Senate Subcommittee appears lost in an antitrust cloud, but politics—or another act of platform aggression—might enable them to see the light.
Disclosure: The author’s firm is involved in litigation against both Apple and Google, and in a regulatory matter in which Google and Facebook will be an adverse party.