Antitrust Update: The House Antitrust Subcommittee’s Big Tech Report
How should Congress respond to Big Tech’s market dominance?
The U.S. Capitol Building in Washington, D.C.
BY: Jerome chan, STAFF MEMBER
On October 6, the House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law released a report accusing Facebook, Google, Amazon, and Apple of various anti-competitive and monopolistic practices. Judiciary Committee Chairman Jerrold Nadler and Antitrust Subcommittee Chairman David N. Cicilline jointly remarked that the four Big Tech companies each wield “significant market power over large swathes of our economy” and that they “expand and exploit their power of the marketplace in anticompetitive ways.” Accordingly, the report argued, this dominance has “diminished consumer choice, eroded innovation and entrepreneurship in the U.S. economy, weakened the vibrancy of the free and diverse press, and undermined Americans’ privacy.”
Described in an accompanying press release as the product of the “first major congressional antitrust investigation in decades,” the report is a clear indication of how Congress views Big Tech’s market presence. Politicians from both sides of the aisle have expressed hostility toward Big Tech: Senator Elizabeth Warren proposed breaking up Big Tech, and President Donald Trump once called Amazon a “no-tax monopoly.” This post will highlight the report’s findings, claims, and recommendations and briefly discuss how antitrust law may develop in response to Big Tech’s increasing market dominance.
The report states explicitly that Facebook’s social networking monopoly is “firmly entrenched.” Its aggressive acquisition of competitors, most notably Instagram in 2012, is a chief cause of this monopolization. Additional anti-competitive strategies utilized by Facebook include using data to create “superior market intelligence” to identify, copy, and/or kill “nascent competitive threats.”
In fact, the report states that, in Facebook’s view, internal competition between Facebook products exceeds competition from external firms. Instagram is again a notable example: a former Instagram employee reports “brutal in-fighting between Instagram and Facebook” back in 2018, characterizing Facebook’s acquisition of Instagram as “collusion, but within an internal monopoly.”
The report offers a broad theory of harm caused by Facebook’s monopoly, alleging that the quality of Facebook has deteriorated in the absence of competition, leading to worse privacy protection for users and a rise in misinformation on the platform.
The report unequivocally states that Google has a monopoly in general online search and search advertising. Google maintains this monopoly through various anti-competitive tactics and contracts, including using its search monopoly to take information from third parties to “bootstrap its own rival search services,” disadvantaging third-party vertical providers, and populating its search results pages with ads and its own content.
Google also leveraged its ownership of Android to further its search monopoly. For example, Google required Android smartphone manufacturers to pre-install Google’s own apps and make them the default option. Google’s diversification into Chrome, Google Maps, and Google Cloud allows it to “protect and promote its other lines of business” and capture most of the market for navigation mapping. Like Facebook, Google exploits asymmetrical market information to track potential and actual competitors.
Accordingly, the report describes Google as an “ecosystem of interlocking companies” where different lines of business generate different troves of user data, enabling it to increase market dominance and barriers to entry. For consumers, Google’s products are nominally free. However, with lessened competitive alternatives, these products need not be of high quality. For example, the presence of millions of unmonitored fake listings on Google Maps is dangerous since it leads to fraudulent behaviour.
Amazon
The report claims that Amazon has “significant and durable market power in the U.S. online retail market” and estimates that Amazon controls at least 50% of U.S. online retail sales. This is partly due to its acquisitions of competitors, most notably Diapers.com and Zappos. Such acquisitions not only eliminate Amazon’s competition, but also generate customer data that further its other lines of business.
In fact, Amazon treats third-party sellers—approximately 37% of whom depend on Amazon as their sole income source—as “internal competitors.” It exploits its unique access to these competing sellers’ data in order to copy their products and offer them at lower prices. This is a classic example of predatory pricing, a practice in which a dominant firm purposely under-prices its products to crowd out competitors. Once higher-priced competitors are forced from the market, the remaining, de facto monopoly is free to increase prices. Amazon is well-known for maintaining small profit margins as it grew quickly in the late 2000s and early 2010s. In fact, a few months before Amazon acquired Diapers.com in November 2010 it offered 30% cash-back on diapers and a free year of Prime membership to drive down Diapers.com’s profitability. Internal documents report that Amazon was “willing to bleed over $200 million in losses on diapers in one month.” Diapers.com was eventually shut down in 2017; Amazon cited profitability issues.
Diapers.com is not Amazon’s only foray into predatory pricing. Amazon’s Alexa ecosystem uses similar anti-competitive tactics, and the devices are priced below cost. Prime subscriptions themselves are also a massive loss for Amazon, but they are reportedly one of Amazon’s “most effective drivers of growth,” since the service’s convenience compels more consumer spending.
Amazon compensates for these losses in part through Amazon Web Services, which dominates the web services market. It provides the internet infrastructure for many businesses, including internet behemoths like Netflix, Facebook, and Adobe, as well as websites for small businesses, community organizations, and this very university. In the second quarter of 2020, over half (57%) of Amazon’s operating profit came from Amazon Web Services. That figure was 77% for the first quarter.
At first glance, consumers do not suffer any harm since they enjoy low prices, an abundance of choice, and, for many, free two-day delivery. However, on a deeper level, Amazon’s anti-competitive practices can be characterized by “bullying, fear, and panic.” Suppliers are locked into Amazon’s ecosystem and have no say as their data is appropriated, their products deprioritized, and their fees increased. In the long run, customers actually suffer due to fewer online retail choices, poorer customer service, and lower product quality.
Apple
The report claims that Apple has “significant and durable market power in the market for mobile operating systems and mobile app stores.” This is due to the popularity of the iPhone, iPad, and iPod, which exclusively run the iOS mobile operating system. As of 2019, there are nearly 200 million iPhones in the United States alone.
Apple has a monopoly on its own mobile app store market. It leverages and exploits this monopoly power by discriminating against rival apps, misappropriating competitively sensitive information, and charging app developers exorbitant prices, among other things. Phillip Shoemaker, former director of app review for Apple’s App Store, told the House Antitrust Subcommittee of an app developer who devised a way to sync the iPhone and Mac wirelessly. The app did not violate any of the App Store guidelines, but Apple rejected it nonetheless and appropriated the technology without recompense to the developer.
The report’s conclusion with respect to Apple is similar to its criticism of Amazon’s practices: while no immediate, drastic harm befalls the users of the iPhone, iPad, or iPod, Apple’s monopoly power over software distribution on its iOS devices has “reduc[ed] quality and innovation among app developers, and increase[ed] prices and reduc[ed] choice for consumers.”
Suggested Reforms
The report proposes a wide range of very aggressive reforms to antitrust law and enforcement. Recommendations include that Congress structurally separate and prohibit certain instances of dominance within the digital economy, impose non-discrimination restrictions against self-preferential treatment, and establish presumptive prohibitions against future mergers and acquisitions by dominant platforms. While it is not clear how Congress can accomplish these sanctions, the ideas are certainly not new. Tim Bray, a former Amazon vice president and engineer, thinks that Amazon Web Services should be “spun off” to form an independent company. At a broader level, the report also recommends Congress reconsider and reassert the goals of antitrust law and enforcement and strengthen congressional oversight, federal antitrust agencies, and private enforcement.
Antitrust law has historically focused on the impacts of anti-competitive practices on consumer welfare, often indicated by increased prices in the short run—an approach based on the Chicago school of economics. However, the House Antitrust Subcommittee’s report clearly supports expanding the scope of antitrust law to regulate much more than reductions in consumer welfare. This proposal is in line with the “New Brandeis” school of antitrust law, which advocates for the evaluation of, among other things, underlying market structures such that antitrust law can reflect the broader themes of fairness and public interest. Some argue that antitrust law should be expanded to include a stronger link to other legal issues such as data privacy.
But what does this mean in practice? In the short term, antitrust agencies on both sides of the pond are expected to take a more aggressive stance against Big Tech. In addition to Apple’s ongoing $15 billion tax battle with the E.U., the European Commission plans to bring charges against Amazon for its dominance in internet commerce. Here in the United States, the Department of Justice filed a lawsuit against Google over its online search monopoly. Columbia Law Professor Tim Wu thinks that the DOJ may even file a lawsuit against Facebook. However, the complexity and relative novelty of these lawsuits makes it unclear whether they will restore or promote competition across digital markets.
In the long term, as the report suggests, antitrust law should be reasserted. But how? There is, for example, Republican disagreement toward adopting blunt, wide-sweeping “chainsaw[s] of regulation.” The European Commission provides a transnational example: it is currently considering how to revise the “relevant market” definition to adapt to the digital economy. It is also considering drafting regulations specific to Big Tech, since a “one-size-fits-all” approach could “choke the smaller players” in red tape. Simultaneously, it plans to push forward regulations against unfair business practices, promote causes such as bans on self-preferential treatment, and look into collective bargaining rights for gig economy workers such as Uber drivers. Simply put, there remains significant debate over how antitrust law and enforcement should change in the United States and around the world. Should there be a change in the goals of antitrust law and enforcement? Or should there be a change in the application of existing goals?
Big Tech’s dominance of the rapidly developing digital market has pushed antitrust law to the cusp of possibly significant and remarkable change. How will nations respond to this digital challenge?
Jerome Chan is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. He will also graduate from King’s College, London with an LL.B. in 2022.