House Judiciary Committee Continues Its Antitrust Examination

The House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee continued its series of hearings titled “Online Platforms and Market Power” with an examination of the agencies charged with enforcing federal antitrust laws: the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Subcommittee Chair David Cicilline (D-RI) said the U.S. is experiencing a moment of extreme concentration across the economy as in industry after industry a few companies dominate critical markets that effect the day-to-day lives of hard-working Americans. He said unchecked by competition corporations can abuse their market power to raise prices for consumers, lower wages, and stifle entrepreneurship, and enriching themselves and their executives at the expense of everyone else. Cicilline said that one area where the concentration is most troubling is in the digital economy where a small number of dominant platforms have become critical intermediaries for the flow of commerce and information. He stated that while the platforms have delivered consumers some benefit, there is growing evidence that these platforms are now using their power to set the terms of the market in ways that enrich them but make it impossible to compete on an even playing field. Cicilline asserted that the news each day brings stories of how the decisions by these handful of companies increasingly determines whether a merchant, publisher, or app developer sinks or swims. He contended that because several of these monopolies operate business models premised on the surveillance of Americans, the power wielded over Americans is unprecedented.

Cicilline noted that six months ago the committee initiated a bipartisan investigation into competition in digital markets that follows in a long tradition of Congressional investigations into industry-wide assessments of whether dominant corporations were abusing their market power and whether U.S. laws are working to reverse the rising tide of economic concentration. Cicilline said the investigation is pursuing a similar path, and he said a key task for the subcommittee is understanding the enforcement record of each agency. Cicilline claimed that over the last decade alone, the largest technology firms have acquired over 436 companies, many of which were actual or potential competitors, but not a single transaction was challenged by antitrust enforcers. He added that only a handful were closely scrutinized. Cicilline said that the last major case brought by enforcers was Microsoft 20 years ago. He remarked that while these problems have plagued markets across the economy and not just in digital markets, the enforcement gap in these markets have created a de facto antitrust exemption for online platforms. Cicilline asked whether the federal agencies have failed to bring cases because of unfavorable caselaw requiring Congressional action to amend the law. He asked whether the inaction is due to a lack of agency resources or is it due to a lack of will at the agencies to enforce the laws on the books. Cicilline said that these are the questions the subcommittee is looking to answer through its investigation and areas he hoped would be fully addressed during the hearing.

Subcommittee Ranking Member James Sensenbrenner (R-WI) said in the course of ordinary oversight of antitrust enforcement agencies the committee conducts annual or biannual hearings to examine the waterfront before these important agencies, but the DOJ and FTC will discuss only one set of issues: antitrust issues in the tech sector. He asserted that the agencies understand the importance of getting right the applicability of the nation’s antitrust laws to this critical sector of the modern economy. Sensenbrenner noted that like the subcommittee, the agencies are in the midst of a searching inquiry into whether the U.S.’s century-old antitrust laws and government enforcement of those laws is adequate to the challenges presented by the new digital economy. Sensenbrenner said the subcommittee’s examination thus far has looked at whether entities in the tech sector, particularly the largest online platforms, have or have not been accumulating and leveraging market power over competitors and other market participants. He added that affected entities include fellow technology companies, news publishers, and app developers who depend upon large online platforms to reach consumers and many others. He stated that the subcommittee has also examined aspects of online data privacy and the role online data plays in competition, particularly with very large accumulations of consumers’ online data. Sensenbrenner said the testimony at the hearing would help the subcommittee by receiving the wisdom and expertise of the antitrust agencies and by helping legislators better understand if antitrust laws are current and up to the task of the modern digital economy. He added that there a number of issues before the agencies that Members are monitoring closely, including consent decrees. HE said he intended to submit questions for the record on situations where antitrust laws could be misapplied or extending to the point where success is punished, innovation is suppressed, and consumer welfare is harmed.

Committee Chair Jerrod Nadler (D-NY) stated that stated that “[t]here is growing evidence that a handful of dominant platforms now control key arteries of online commerce, content, and communications.” He claimed that “[a] number of important digital markets are now dominated by just one or two firms. For example, Google controls over 90% of the global search market and Facebook captures over 80% of all global social media revenue…[and] by some estimates, Amazon controls about half of all online commerce in the U.S.” Nadler stated that “[w]hile the open internet has delivered enormous benefits to Americans, waves of anti-competitive consolidation in digital markets have had devastating effects on key elements of our democracy and economy, such as the free and diverse press.” He said that “[i]t also threatens the survival of a key element of our economy—the American startup.” Nadler stated that “[e]mpirical evidence suggests that the trends of increasing consolidation and market power in digital markets pose a threat to technology startups and innovation in the U.S. economy.” He said that “[f]or example, it has been reported that seed funding for technology startups—the initial round of investment in a startup—has declined significantly from 2015 to 2018.”

Nadler stated that “I am deeply concerned about the antitrust agencies’ lax merger enforcement which has permitted these harmful levels of concentration and the rise of market power in the digital economy…[and] [i]n addition to rising consolidation, there have also been allegations of anti-competitive conduct in digital markets.” He stated that “[f]or instance, as more small- and medium-sized businesses become reliant on the dominant platforms to reach customers, they have increasing concerns that discriminatory or exclusionary conduct by the platforms could destroy their business over the course of just a few days or months.” Nadler stated that “[d]espite mounting evidence of illegal monopolization activities by the dominant platforms, and numerous cases brought by international enforcers, U.S. enforcers appear to be paralyzed.” Nadler stated that “[i]t has been decades since the DOJ or the FTC has brought a significant monopolization case in the tech sector. “ He said that “Tim Wu, a professor at Columbia University testified before the Judiciary Committee in July that the DOJ’s court challenges against AT&T, IBM, and Microsoft ‘were foundational in terms of shaking up industry and creating room for new firms to grow.’”

Nadler stated that “I am encouraged by reports of the agencies’ current investigations into the dominant tech platforms, but the decline of enforcement over the past several decades is extremely troubling—a decline, I should add, that has occurred across all industries, not just in the technology sector.” He contended that “I find it hard to believe that companies have simply ceased engaging in illegal monopolization rather than the more likely explanation—which is that the agencies are underenforcing the antitrust laws.” Nadler conceded that “[t]here may be a number of reasons for underenforcement by the agencies with respect to both anti-competitive conduct and merger review, including unfavorable case law, insufficient enforcement will, and inadequate agency resources, all of which I look forward to examining at today’s hearing.”

Nadler stated that “[o]ne problem Congress can most directly address is ensuring that the agencies charged with antitrust enforcement have sufficient funding…[and] [u]nfortunately, appropriations to these agencies have declined over the last decade despite an increase in merger activity and an increase in the complexity of investigations.” He claimed that “[i]n real terms, agency funding in 2019 was nearly 20% lower than in 2010…[and] it is vital that the antitrust agencies have the resources they need to do their jobs.” Nadler stated that “[w]hile ultimately it is the responsibility of the antitrust enforcement agencies to enforce the law, Congress has an obligation to assess whether existing antitrust laws and competition policies—and the will to enforce those laws and policies—are adequate to address the competition issues facing our country, and to take action if they are found to be lacking.”

Committee Ranking Member Doug Collins (R-GA) stated that “[t]he subcommittee’s antitrust investigation has been one of the bright spots on the committee’s agenda this term.” He said “[t]he importance of digital technology to our constituents’ lives grows every day…[and] [t]he tech sector is one of the greatest forces for innovation and wealth creation in the world and our economy.” Collins claimed that “[r]arely in history have we witnessed such a transformative change in how we go about our lives.” He stated that “[m]uch of that change is very much for the good, but not all…[and] [a]mong these changes are the ways that companies compete — both fairly and unfairly — to provide goods and services to consumers.” Collins claimed that “[i]t is therefore critical that we work on a bipartisan basis to understand whether our current antitrust laws and our antitrust enforcement agencies are up to the task the tech sector presents.” He remarked that “[w]e will have accomplished something important if together we can determine whether our antitrust laws need updating for the digital economy or whether the antitrust agencies need Congress’ help to assure vigorous antitrust enforcement in the tech sector.”

Collins claimed that “[f]rom the start of our inquiry, I have made clear the overarching principles guiding me in this endeavor:

  • First, while some tech companies have become very big, big is not necessarily bad. Companies that offer new innovations, better solutions and more consumer benefits at lower prices often become big — to the benefit of society. Proposals to break up big companies because of their size alone risk throwing the baby out with the bath water and simply punishing success.
  • Second, just like the existing antitrust laws, proposals for new legislation should aim to keep the free market free. Proposals to construct broad new regulatory regimes should be viewed with caution. Experience shows that regulatory solutions often miss the mark, solve problems less efficiently than free markets can and create new opportunities for anti-competitive companies to suppress competition through rent-seeking. That is especially true when regulation attempts to take on evolving problems in fast-moving markets.

Collins stated that “[t]his principle is particularly important to me as we seek a better way to protect the privacy of consumers’ online data…[and] I announced in July of this year that I would be introducing legislation this term to achieve better protection.” He added that “I am working hard on that legislation and it is strongly animated by the principle I just laid out.” He asserted that “[o]ther proposals, like laws adopted in Europe and California, threaten to entrench the market power of large incumbent tech companies under the cloak of protecting online data privacy…[and] I want us instead to enact a new federal law that better protects privacy without making it harder for new, small, innovative companies to enter the market, jostle with the giants and strive to become the blockbuster companies of tomorrow.” Collins stated that “[t]he heads of the antitrust agencies before us today also have stated principles they believe should guide antitrust inquiries into the tech sector…[and] I look forward to hearing in depth today about their views and whether we can borrow from some of their guiding lights as we work our way through our own congressional inquiry.”

FTC Chair Joseph Simons stated that

New technologies can offer real consumer benefits, but they can also raise complex and sometimes novel competition issues. We have prioritized efforts to monitor, study, and, where necessary, bring enforcement actions to maintain competition in technology markets. We are undertaking these efforts not only in connection with the technology platforms that are the focus of this committee’s ongoing investigation, but also with respect to technologies employed by companies throughout the economy that are changing and challenging competition. The FTC’s Bureau of Competition this year announced a shift in internal resources to establish a Technology Enforcement Division, a dedicated group that will monitor competition in U.S. technology markets and recommend enforcement action when warranted.

Simons said that “[a]s outlined in [FTC] testimony from last month, current law provides the Commission with several potential avenues to counter anticompetitive conduct by large technology firms that seek to thwart nascent and potential threats by acquisition or other means.” He stated that “[f]or instance, when evaluating mergers in dynamic markets, the Commission pays particularly close attention when an industry leader seeks to acquire an up-and-coming competitor that is changing customer expectations and gaining sales.”

Simons claimed that

The FTC is in the process of concluding a prominent policy initiative: its Hearings on Competition and Consumer Protection in the 21st Century. This extensive series of public hearings was convened to consider whether broad-based changes in the economy, evolving business practices, new technologies, and international developments warrant adjustments to competition and consumer protection law, enforcement priorities, and competition policy. The FTC worked to feature a wide variety of perspectives in these hearings. We invited legal and economic academics and consultants, public interest groups, public advocacy groups, 15 and representatives of businesses and industries to our hearing sessions. By the conclusion of our final hearing on June 12, 2019, we had convened 14 sessions over 23 days, with thousands of people attending via webcast or in person. To date, we have received close to 950 unique comments on the covered topics. All the information related to the hearings—the transcripts, comments, presentations, and questions—is available on the FTC website. This large corpus of material on the critical issues facing modern competition and consumer protection policy has already created a valuable resource for future research by the agency, interested academics, practitioners, and policymakers. At this stage, we are distilling the large volume of stakeholder input and generating further output, such as reports, statements, guidance, and speeches.

Simons stated that

As we have previously announced, we are prioritizing work involving platform competition, vertical mergers, and international initiatives. This work will be forward-looking and will both support the Commission’s enforcement mission and identify additional policy initiatives that may be important in shaping the future development of antitrust law. We expect to begin releasing some of this output soon. Through these hearings, the Commission intends to help formulate an enduring approach to current questions about antitrust and consumer protection enforcement. We recognize that, in some areas of the law, some now question the policies that have served as the basis for what had long been a bipartisan consensus. Particularly with respect to certain antitrust issues where this consensus has been questioned, we believe these hearings were a valuable investment of our resources to determine whether adjustments are necessary.

Assistant Attorney General Makan Delrahim said the Antitrust Division at the DOJ is hard at work reviewing the business practices of online platforms, which was announced in July. He said to date both Facebook and Google have publicly disclosed investigations. Delrahim stressed those companies are not the only focus of the review but they are a significant part of the review because of the role they play in the lives of so many American citizens. He added these companies occupy a unique role in the era of online, personalized advertising supported by user data. Delrahim said the work the DOJ is doing is focused in part on understanding the role data play in personalized advertising and the competitive dynamics. He stated DOJ is looking at how these dynamics create value for advertisers, content creators, and the consumers who use these advertising supported platforms. Delrahim claimed that by understanding these competitive dynamics, the DOJ can determine if the market leaders have monopoly power, how they exercise such monopoly power, and whether the source of that power is from merits-based competition or if the source of that power is exclusionary or anticompetitive conduct. Delrahim stated that other online platforms make money in other ways, and we’re reviewing those other business models as well. He contended that the common thread is that online platforms bring together users who access information services on the platform with third party providers of products, services, or advertisement. Delrahim claimed the DOJ is concerned about ways the online platform operators can manipulate the conditions for competition, and in some instances, the platform operators may have the incentive to improve the platform for the benefit of all those users while in other instances the platform operator may compete against users of the platform and may have an incentive to disadvantage competitors. He noted the DOJ’s 2008 action against Google and Yahoo’s agreement that would have eliminated the latter as an online search engine, and the companies ultimately decided not to proceed. Delrahim stressed he could not comment on the ongoing investigation but recent public remarks should assure the committee that the DOJ is taking a hard look at any possible anticompetitive behavior in online markets.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s