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Tuesday, July 30, 2019

Anti-Tech Wave Grows with New Justice Department Antitrust Efforts

By Andrea O'Sullivan - July 30, 2019 at 08:30AM

The U.S. is moving against big tech in a big way. Last week, the Department of Justice (DOJ) announced a broad antitrust investigation into whether unnamed technology companies have engaged in anti-competitive activities. This is in addition to DOJ's joint antitrust efforts with the Federal Trade Commission (FTC); DOJ is tackling Apple and Google, while the FTC has Amazon and Facebook. The FTC formed a separate task force to monitor competition in the technology industry earlier this year. Oh yeah, and the House Judiciary Committee is sniffing around for Silicon Valley shenanigans, too.

So far, the DOJ has not named names. Since "search, social media, and some retail services online" were specifically mentioned, it's a good bet that Google, Facebook, and Amazon are among the targets. We can probably throw in the Apple App Store, as well.

We also don't know whether the investigations will be voluntary, or if DOJ will exert authority to compel discovery on heretofore unknown dirty deeds. So it's hard to say exactly what DOJ has up its sleeves.

But if the Trump administration's posture towards big tech is any indication, we should expect a fairly aggressive examination of possible anti-competitive actions.

During his nomination hearing, Attorney General Robert Barr stated that he wondered "how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers" and advocated for "vigorous enforcement of the antitrust laws to preserve competition." In particular, Barr worries that large platforms enjoy network effects so substantial that "particular sectors could essentially be subsumed into these networks."

The writing was always on the Facebook Wall. It's true that until fairly recently, most technology companies had something of a neon halo about them. We used and enjoyed social media platforms every day, those harmless and amusing outlets for comradery and cat-posting. Amazon gave us great cheap junk, Apple had the coolest products. Google gave us, well, everything else.

But how the mighty fall. After a few bonkers elections and a mass awakening to just how all those "free" services make money, America now calls for tech companies' heads.

It's an illustration of general U.S. attitudes to antitrust. On paper, enforcers like the DOJ and FTC are only supposed to intervene when a firm restricts output and raises prices, or when it possesses an "essential facility" available nowhere else. In other words, officials should get involved where consumers are demonstrably harmed, as gauged by measurable economic outcomes like price increases or output restriction.

In practice, however, many call for firms to be broken up anytime we feel they are getting too big. We forget today, but at one point, the hot talk in tech was that MySpace and AOL were due for the antitrust treatment. Today, these names do not conjure images of anti-competitive activity because they were successfully competed against—by Facebook and Google. Yet their actions remain the same.

Under the "market structure" conception of antitrust, it's not so much about protecting consumers as it is about protecting competition—that is to say, protecting current and future competitors.

It's hard to argue, for instance, that Windows users were harmed by the free Internet Explorer browser that came preinstalled on their computers. Microsoft's aggressive behind-the-scenes campaign to convince vendors to snub alternative browsers didn't really affect user experience. If you wanted a different browser, you could just use IE to download another browser. But competitors like Netscape clearly were harmed by such structural defaults, which is why DOJ eventually intervened.

Microsoft was big and seemed unassailable. Of course, it wasn't, but not along the dimensions over which '90s antitrust regulators so agonized. The fall came, to regulators at least, out of nowhere: Apple's streamlined strategy and the open source operating system Linux dealt major blows to Microsoft's seemingly untouchable positions in the personal computing (hello, iPhone) and server markets. Browsers were the wrong battle—dirty as the fight may have been for poor Netscape—and today Microsoft browsers are considered a bit of a joke.

In a similar way, successes spelled trouble for tech titans. It was only a matter of time until they got big enough and unpopular enough to draw antitrust scrutiny. It's almost tautological: The most competitive companies in hindsight become the most "anti-competitive." (Is there a major company who got there by playing nice?) You can always find something to point to as an unfair and unbreakable barrier to competition.

It doesn't sound great to say you are breaking up firms to benefit other companies. Today, aggressive antitrust enforcement is couched in terms of "innovation." It's not that we are shoring up businesses that couldn't keep up. We are taking down today's titans so that they little guys can get a crack at them. With more breathing room, tomorrow's paradigm shifts can sooner take flight today. Some go so far as to claim that without the DOJ's antitrust case tying up Microsoft, Google would have never taken off.

The Justice Department's statements on their investigations hew to this new conception of antitrust as a harbinger of tomorrow's innovation. Its press release singles out practices that have "reduced competition" and "stifled innovation" for scrutiny. Last on that list, by the way, are activities that "otherwise harmed consumers."

We'll have to wait and see what the DOJ will dig up as evidence of anti-competitive behaviors. Perhaps they will discover some truly heinous deeds. Or maybe something fairly benign will be touted as proof that online platforms' gains were ill-gotten, or that their very size is on its face is bad for competition. After all, antitrust regulators will want to come up with something.

They walk a fine line. It's not hard to imagine scenarios where actions that are bad for competitors are also bad for consumers. Let's say Microsoft's browsers blocked users from downloading alternative options. That would clearly limit choice and competition, and would probably stall browser innovation as well. But it's not always the case that what makes competitors' jobs harder makes consumers' lives worse.  Regulators should keep the distinctions clear.

The big guys are ready for a fight, and their lawyers are surely fashioning preemptive rebuttals to defend their most notorious business practices from antitrust affronts. It's how the game is played.

Should we expect these antitrust efforts to do much for innovation? If the past is any guide, the Davids that will take down our Goliaths are probably putting together their slingshots as we speak, far from the eyes of antitrust regulators. And then the next decade's Justice Department will puzzle over just how those new giants got where they are in the first place. After all, if they had actionable information on what the next major markets will be, they might be in a different line of work.


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