Antitrust Report Released

A far reaching set of recommendations on how the U.S. should remake its antitrust policies to take on Big Tech

The subcommittee of the House Judiciary Committee that has been investigating digital competition for over a year issued its final report and is calling for nothing less than a complete remaking of United States (U.S.) antitrust policy and law. In the view of the subcommittee a handful of technology companies have strangleholds on a number of key markets, and the health of the U.S. economy demands that the companies be broken up and reformed. The four companies the subcommittee focused on are Amazon, Apple, Facebook, and Google, four of the world’s largest companies by market capitalization. Even though the tide has turned against these and other large technology companies that were feted during the Obama Administration, if the response of Republicans on the committee encapsulates the feeling of party members in the Senate, there is no likely path for enactment of many of these proposals even under a Biden Administration unless the filibuster is junked. And even then, tech companies would find many sympathetic moderate and centrist Democrats who could not go along with a wholesale reform of antitrust enforcement.

The House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee started its inquiry over a year ago and held seven hearings, including one this past summer with the CEOs of the four companies. Subcommittee Chair David Cicilline (D-RI) has long made his leanings clear in his opening statements and questions as has the full Committee Chair Jerrold Nadler (D-NY). They agree that these companies are too large and current antitrust enforcement and law are inadequate to the job of addressing dominance of inline markets to rival to trusts from more than 100 years ago.

The Subcommittee found:

  • Over the past decade, the digital economy has become highly concentrated and prone to monopolization. Several markets investigated by the Subcommittee—such as social networking, general online search, and online advertising—are dominated by just one or two firms. The companies investigated by the Subcommittee—Amazon, Apple, Facebook, and Google—have captured control over key channels of distribution and have come to function as gatekeepers. Just a decade into the future, 30% of the world’s gross economic output may lie with these firms, and just a handful of others.
  • In interviews with Subcommittee staff, numerous businesses described how dominant platforms exploit their gatekeeper power to dictate terms and extract concessions that no one would reasonably consent to in a competitive market. Market participants that spoke with Subcommittee staff indicated that their dependence on these gatekeepers to access users and markets requires concessions and demands that carry significant economic harm, but that are “the cost of doing business” given the lack of options.
  • This significant and durable market power is due to several factors, including a high volume of acquisitions by the dominant platforms. Together, the firms investigated by the Subcommittee have acquired hundreds of companies just in the last ten years. In some cases, a dominant firm evidently acquired nascent or potential competitors to neutralize a competitive threat or to maintain and expand the firm’s dominance. In other cases, a dominant firm acquired smaller companies to shut them down or discontinue underlying products entirely—transactions aptly described as “killer acquisitions.”
  • In the overwhelming number of cases, the antitrust agencies did not request additional information and documentary material under their pre-merger review authority in the Clayton Act, to examine whether the proposed acquisition may substantially lessen competition or tend to create a monopoly if allowed to proceed as proposed. For example, of Facebook’s nearly 100 acquisitions, the Federal Trade Commission engaged in an extensive investigation of just one acquisition: Facebook’s purchase of Instagram in 2012.

Regarding the four companies themselves, the Subcommittee claimed:

  • Facebook
    • Facebook has monopoly power in the market for social networking. Internal communications among the company’s Chief Executive Officer, Mark Zuckerberg, and other senior executives indicate that Facebook acquired its competitive threats to maintain and expand its dominance. For example, a senior executive at the company described its acquisition strategy as a “land grab” to “shore up” Facebook’s position, while Facebook’s CEO said that Facebook “can likely always just buy any competitive startups,” and agreed with one of the company’s senior engineers that Instagram was a threat to Facebook.
    • Facebook’s monopoly power is firmly entrenched and unlikely to be eroded by competitive pressure from new entrants or existing firms. In 2012, the company described its network effects as a “flywheel” in an internal presentation prepared for Facebook at the direction of its Chief Financial Officer. This presentation also said that Facebook’s network effects get “stronger every day.”
  • Google
    • Google has a monopoly in the markets for general online search and search advertising. Google’s dominance is protected by high entry barriers, including its click-and-query data and the extensive default positions that Google has obtained across most of the world’s devices and browsers. A significant number of entities—spanning major public corporations, small businesses, and entrepreneurs—depend on Google for traffic, and no alternate search engine serves as a substitute.
    • Google maintained its monopoly over general search through a series of anticompetitive tactics. These include an aggressive campaign to undermine vertical search providers, which Google viewed as a significant threat. Documents show that Google used its search monopoly to misappropriate content from third parties and to boost Google’s own inferior vertical offerings, while imposing search penalties to demote third-party vertical providers. Since capturing a monopoly over general search, Google has steadily proliferated its search results page with ads and with Google’s own content, while also blurring the distinction between paid ads and organic results. As a result of these tactics, Google appears to be siphoning off traffic from the rest of the web, while entities seeking to reach users must pay Google steadily increasing sums for ads. Numerous market participants analogized Google to a gatekeeper that is extorting users for access to its critical distribution channel, even as its search page shows users less relevant results.
    • A second way Google has maintained its monopoly over general search has been through a series of anticompetitive contracts. After purchasing the Android operating system in 2005, Google used contractual restrictions and exclusivity provisions to extend Google’s search monopoly from desktop to mobile. Documents show that Google required smartphone manufacturers to pre-install and give default status to Google’s own apps, impeding competitors in search as well as in other app markets. As search activity now migrates from mobile to voice, third-party interviews suggest Google is again looking for ways to maintain its monopoly over search access points through a similar set of practices.
  • Amazon
    • Amazon has significant and durable market power in the U.S. online retail market. This conclusion is based on the significant record that Subcommittee staff collected and reviewed, including testimonials from third-party sellers, brand manufacturers, publishers, former employees, and other market participants, as well as Amazon’s internal documents. Although Amazon is frequently described as controlling about 40% of U.S. online retail sales, this market share is likely understated, and estimates of about 50% or higher are more credible.
    • As the dominant marketplace in the United States for online shopping, Amazon’s market power is at its height in its dealings with third-party sellers. The platform has monopoly power over many small- and medium-sized businesses that do not have a viable alternative to Amazon for reaching online consumers. Amazon has 2.3 million active third-party sellers on its marketplace worldwide, and a recent survey estimates that about 37% of them—about 850,000 sellers—rely on Amazon as their sole source of income.
    • Amazon achieved its current dominant position, in part, through acquiring its competitors, including and Zappos. It has also acquired companies that operate in adjacent markets, adding customer data to its stockpile and further shoring up its competitive moats. This strategy has entrenched and expanded Amazon’s market power in e-commerce, as well as in other markets. The company’s control over, and reach across, its many business lines enables it to self-preference and disadvantage competitors in ways that undermine free and fair competition. As a result of Amazon’s dominance, other businesses are frequently beholden to Amazon for their success.
    • Amazon has engaged in extensive anticompetitive conduct in its treatment of third-party sellers. Publicly, Amazon describes third-party sellers as “partners.” But internal documents show that, behind closed doors, the company refers to them as “internal competitors.” Amazon’s dual role as an operator of its marketplace that hosts third-party sellers, and a seller in that same marketplace, creates an inherent conflict of interest. This conflict incentivizes Amazon to exploit its access to competing sellers’ data and information, among other anticompetitive conduct.
  • Apple
    • Apple has significant and durable market power in the mobile operating system market. Apple’s dominance in this market, where it controls the iOS mobile operating system that runs on Apple mobile devices, has enabled it to control all software distribution to iOS devices. As a result, Apple exerts monopoly power in the mobile app store market, controlling access to more than 100 million iPhones and iPads in the U.S.
    • Apple’s mobile ecosystem has produced significant benefits to app developers and consumers. Launched in 2008, the App Store revolutionized software distribution on mobile devices, reducing barriers to entry for app developers and increasing the choices available to consumers. Despite this, Apple leverages its control of iOS and the App Store to create and enforce barriers to competition and discriminate against and exclude rivals while preferencing its own offerings. Apple also uses its power to exploit app developers through misappropriation of competitively sensitive information and to charge app developers supra-competitive prices within the App Store. Apple has maintained its dominance due to the presence of network effects, high barriers to entry, and high switching costs in the mobile operating system market.

The Subcommittee summarized its recommendations:

a. Restoring Competition in the Digital Economy

  • Structural separations and prohibitions of certain dominant platforms from operating in adjacent lines of business;
  • Nondiscrimination requirements, prohibiting dominant platforms from engaging in self- preferencing, and requiring them to offer equal terms for equal products and services;
  • Interoperability and data portability, requiring dominant platforms to make their services compatible with various networks and to make content and information easily portable between them;
  • Presumptive prohibition against future mergers and acquisitions by the dominant platforms;
  • Safe harbor for news publishers in order to safeguard a free and diverse press; and
  • Prohibitions on abuses of superior bargaining power, proscribing dominant platforms from engaging in contracting practices that derive from their dominant market position, and requiring due process protections for individuals and businesses dependent on the dominant platforms.

b. Strengthening the Antitrust Laws

  • Reasserting the anti-monopoly goals of the antitrust laws and their centrality to ensuring a healthy and vibrant democracy;
  • Strengthening Section 7 of the Clayton Act, including through restoring presumptions and bright-line rules, restoring the incipiency standard and protecting nascent competitors, and strengthening the law on vertical mergers;
  • Strengthening Section 2 of the Sherman Act, including by introducing a prohibition on abuse of dominance and clarifying prohibitions on monopoly leveraging, predatory pricing, denial of essential facilities, refusals to deal, tying, and anticompetitive self-preferencing and product design; and
  • Taking additional measures to strengthen overall enforcement, including through overriding problematic precedents in the case law.

c. Reviving Antitrust Enforcement

  • Restoring robust congressional oversight of the antitrust laws and their enforcement;
  • Restoring the federal antitrust agencies to full strength, by triggering civil penalties and other relief for “unfair methods of competition” rules, requiring the Federal Trade Commission to engage in regular data collection on concentration, enhancing public transparency and accountability of the agencies, requiring regular merger retrospectives, codifying stricter prohibitions on the revolving door, and increasing the budgets of the FTC and the Antitrust Division; and
  • Strengthening private enforcement, through eliminating obstacles such as forced arbitration clauses, limits on class action formation, judicially created standards constraining what constitutes an antitrust injury, and unduly high pleading standards.

The Ranking Member on the Antitrust, Commercial, and Administrative Law Subcommittee, Jim Sensenbrenner (R-WI) signaled his agreement with some of the recommendations made in the report but articulated his views:

  • I disagree with the view that there needs to be a wholesale rewrite of our country’s antitrust laws.
  • Congressional review of our antitrust laws in the age of Big Tech was absolutely warranted.  Oversight of the existing legal and regulatory framework is one of the key functions of the committee system, and I applaud Chairman Cicilline on his undertaking of this project in a bipartisan manner. 
  • There actually is a lot that we agree on, including the lack of sufficient scrutiny on past activity by these companies.  For example, the report highlights that Facebook only had one acquisition extensively reviewed by the FTC out of nearly 100.  That lack of enforcement raises significant questions. What becomes clear is that better resources and funding for the enforcement agencies are key to having an effective antitrust framework.
  • Ultimately, I am concerned with several of the recommendations made by the committee.  A ‘Glass-Steagall’ like approach to tech regulation does not benefit consumers and will lead to too much government regulation of a very innovative industry.  Likewise, mandating data interoperability could hamper future innovation by preventing the development of new and better systems.
  • I am also opposed to several of the proposed changes to merger activity.  A presumptive ban on future acquisitions, especially now with economic uncertainty plaguing the world, could hinder potentially fruitful, beneficial business decisions. Also, shifting the burden of proof in merger cases misplaces the obligation upon companies to prove their innocence rather than the government proving their guilt.

In his statement, Ranking Member Jim Jordan (R-OH) again chose to ignore the competition and market dominance issues on which a number of his Republican colleagues agreed with Democrats to again reiterate unproven Republican talking points about alleged conservative bias:

Big tech is out to get conservatives. Unfortunately, the Democrats’ partisan report ignores this fundamental problem and potential solutions and instead advances radical proposals that would refashion antitrust law in the vision of the far left.

On the same day, a small group of committee Republicans released their report on “Big Tech” with their proposed policy and legal solutions. This effort was led by Representative Ken Buck (R-CO), a subcommittee member who participated in the hearings in a bipartisan fashion even praising Cicilline for his evenhanded conduct of the proceedings. However, Buck did indicate he could not agree with some of the directions his Democratic colleagues seem to be heading in response to the evidence. Buck was joined by Representatives Matt Gaetz (R-FL), Doug Collins (R-GA), and Andy Biggs (R-AZ).

They noted:

We write this response to join Chairman Cicilline and the majority staff on certain recommendations, offer modifications to some recommendations, and argue against the wisdom of proceeding on a few recommendations. We also want to point out that the committee’s ongoing efforts should emphasize issues that have been ignored but must be addressed in the future for a truly bipartisan approach to reforming Big Tech’s dominant position in the marketplace. Finally, we want to thank the Chairman for not using this report as an opportunity to push a progressive labor, environmental, or other unrelated policy agenda under the guise of antitrust enforcement. We sincerely appreciate the Chairman’s friendship and dedication to making this process open and accessible to all members.

Buck, Gaetz, Collins, and Biggs added:

The majority staff report offers a comprehensive review of the technology marketplace and accurately depicts the harmful effects of Big Tech’s anticompetitive reign over the digital economy. Many of the factual findings detailed in the report are undeniable. The majority staff accurately portrays how Apple, Amazon, Google, and Facebook have used their monopoly power to act as gatekeepers to the marketplace, undermine potential competition, and pick winners and losers, all while simultaneously cozying up to unfriendly nations like China in order to further expand their global footprint.

In terms of where they agree with Cicilline and the Democrats, they remarked:

  • We agree that antitrust enforcement agencies need additional resources and tools to provide proper oversight. However, these potential changes need not be dramatic to be effective. By reinforcing presumptions that certain behaviors are likely to reduce competition, lowering evidentiary burdens in litigated cases, and emphasizing that anticompetitive effects are not limited to price effects and include innovation competition, quality, output, and consumer choice, Congress can make a meaningful difference.
  • We also agree with a number of the majority’s other legislative recommendations, including proposals to shift the burden of proof for companies pursuing mergers and acquisitions and empowering consumers to take control of their user data through data portability and interoperability standards. Additionally, the report offers recommendations where we believe there is common ground, but the subcommittee should receive expert feedback before pushing forward. Some of these proposals include the majority’s monopoly reforms related to predatory pricing, monopoly leveraging, the Essential Facilities Doctrine, and policies related to the Supreme Court’s recent decision related to two-sided markets in Ohio v. American Express Co.

Buck, Gaetz, Collins, and Biggs spelled out the recommendations made by the majority they could not join:

  • However, the majority also offers policy prescriptions that are non-starters for conservatives. These proposals include eliminating arbitration clauses and further opening companies up to class action lawsuits. Similarly, the majority’s desire to institute Glass- Steagall for America’s tech sector and modeling the majority’s equal terms for equal services recommendation on President Obama’s net neutrality rule will not garner support from Republicans.
  • While we agree in principle with the findings identified in the report, we cannot endorse all of the legislative recommendations offered by the majority. We will work with the Chairman in a bipartisan fashion to help enact the legislative solutions where we can agree. However, we are concerned that sweeping changes could lead to overregulation and carry unintended consequences for the entire economy. We prefer a targeted approach, the scalpel of antitrust, rather than the chainsaw of regulation.

© Michael Kans, Michael Kans Blog and, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and with appropriate and specific direction to the original content.

Image by xresch from Pixabay

Technology Antitrust Hearing

With its investigation nearing an end, a subcommittee hears from antitrust witnesses on how to best address the problems turned up in Big Tech.

On October 1, the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held a hearing as part of its series on online competition titled “Proposals to Strengthen the Antitrust Laws and Restore Competition Online.” At this seventh hearing in the series, the subcommittee heard from antitrust enforcement experts from across the spectrum of approaches to dealing with competition and antitrust issues. It is rumored the subcommittee will release its recommendations and proposal next Monday, and if this is the case, it comes at a point when the United States Department of Justice (DOJ) and state attorneys general led by Texas Attorney General Ken Paxton may file their antitrust lawsuits against Google in the near future. It has also been rumored the Federal Trade Commission (FTC) will seek to file its antitrust action against Facebook by the year’s end. Moreover, there are ongoing investigations into Amazon and Apple’s practices that could lead to antitrust actions, probably next year at the earliest.

Subcommittee Chair David Cicilline (D-RI) (click here to watch his opening statement) said that since June 2019, the subcommittee has conducted an investigation into the state of competition in digital markets. He said the subcommittee promised a “top-to-bottom” review, including the business practices and dominance of the largest tech firms, Amazon, Apple, Google, and Facebook. Cicilline said over the last fifteen months, the subcommittee collected nearly 1.3 million internal documents and communications, testimony from 30 witnesses, submissions from more than 40 antitrust experts of every political persuasion, interviews with more than 240 market participants, employees of the investigated platforms, and other interested parties. Cicilline stated that similar to prior investigations, the subcommittee did not set out with any preordained outcome in mind and have followed the facts. He asserted the subcommittee has worked to preserve bipartisan cooperation throughout the process. Cicilline said this would be the seventh and final hearing in the investigation.

Cicilline contended in the last hearing the subcommittee pressed the CEOs of the four companies for more than six hours with evidence of their anticompetitive abusive practices. He declared their answers were evasive and non-responsive. Cicilline added these responses raised new questions as to whether the CEOs believe their companies are beyond oversight. He allowed these four corporations differ in important ways, but the investigation has identified three problems that each present:

1) each platform now serves as the gatekeeper over a key channel of distribution and by controlling access to markets, these giants are able to pick winners and losers throughout the economy. He contended that not only do they wield tremendous power but they are able to abuse by charging exorbitant rates and fees and imposing oppressive contracts and extracting valuable personal data from the people and businesses that rely on them.

2) each platform uses their gatekeeper position to protect their own power by controlling the infrastructure of the digital age they have surveilled other businesses to identify potential rivals and ultimately bought out, copy, or cut off their competitive threats.

3) These platforms have abused, and it seems continue to abuse, their control to expand their power in the marketplace whether through self-preferencing, predatory pricing, or requiring users to buy additional products, the dominant platforms have used their power in destructive ways to grow even bigger

Cicilline conceded each of these American companies have contributed immense technological breakthroughs and have added value to the United States over the past few decades. He said they were founded on shoestring budgets in dorm rooms and garages  and are a testament to our core values as a country. Cicilline said in an effort to continue and promote this new economy, Congress and antitrust enforcers have allowed these firms to regulate themselves with little oversight. He asserted as a result the internet has become highly concentrated , less open, and more hostile to innovation and entrepreneurship. Cicilline said to put it simply, these once scrappy underdog startups have grown into the kids of monopolies last seen more than a century ago during the time of oil barons and railroad tycoons. He declared the U.S. is at a crossroads and added the hearing is designed to discuss these problems and possible paths forward. Cicilline added that the hearing also concerns broader questions about market power in the U.S. economy and potential solutions to arrest this concerning trend. Cicilline said he and Subcommittee Ranking Member James Sensenbrenner (R-WI) had sent requests for answers to antitrust experts on a range of issues, including whether existing laws are adequate to addressing current market concentration, and they received 38 submissions, including from some of the witnesses at the hearing.

Subcommittee Ranking Member James Sensenbrenner (R-WI) (click here to watch his opening statement) stated the investigation has been very informative and has allowed the subcommittee to better understand the tech ecosystem. He said they have learned about some of the nation’s largest and most successful companies. Sensenbrenner stated Google, Facebook, Amazon, and Apple are ubiquitous today but grasping their influence and size, and more importantly, what they do with that influence and size is something Congress needs to examine. Sensenbrenner stated the examination of the state of antitrust in the tech world is wrapping up. He noted the subcommittee has heard from academics, enforcers, competitors, and the “big four tech companies themselves.” Sensenbrenner stated the record is extensive.

Sensenbrenner said the witnesses are here to tell the subcommittee what it should do about these issues. He contended the size of the panel reflects the diverse opinions on what is to be done. Sensenbrenner noted at the last hearing he stated his beliefs that U.S. antitrust laws did not need to change nor should the consumer welfare standard be abandoned. He argued that his 42 years’ experience in Congress has taught him that the body is ill-suited to micromanage the economy or to predict what it will look like in the future. Sensenbrenner said he remains skeptical of proposals to break up the companies, that mandate a one size fits all data standard, or create a “government-run public option.” He stated that these steps would ultimately stifle innovation and harm consumers.

Sensenbrenner stated the question that the subcommittee should be asking is whether the laws are insufficient to protect consumers. He claimed Americans consumers have been well served by the nation’s antitrust framework for decades. Sensenbrenner asserted overly burdensome regulations to break up these companies or having the government insert itself in their operations is the right course of action. He stated where improvement is needed is in the enforcement of existing law, and it should be noted that enforcement is starting to work. Sensenbrenner noted the DOJ and FTC antitrust investigations into the big tech companies and that DOJ is readying a case against Google. He stressed that the consumer welfare standard should be kept in mind in considering any overhaul of antitrust laws.

Committee Chair Jerrod Nadler (D-NY) (click here to watch his opening statement) stated that “over the past fifteen months, the [subcommittee] has undertaken a historic, bipartisan investigation of competition in the digital marketplace.” He said that “[a]s I made clear at the Subcommittee’s last hearing, I had significant concerns about consolidation and its harmful effects.” Nadler claimed “[t]he investigational record bore this out…[and [e]ach of the major companies that were part of this investigation, in its own way, exerts dominant control in the digital marketplace that is cause for concern.” He asserted that “[a]s we approach the end of this investigation—with the benefit of our six hearings and substantial record—my belief that we must modernize and reinvigorate enforcement of the antitrust laws is stronger than ever.”

Nadler claimed “[w]e must modernize our antitrust laws to meet the challenges of our modern economy….[a]nd we must ensure that our enforcement agencies have the tools, resources, and the will to vigorously enforce the law to protect consumers and promote competition.” He stated that “[t]his investigation has also made clear to me that beyond fixing the antitrust laws, we must also use our oversight authority to shore up the antitrust enforcement agencies’ ability and will to enforce those laws.” Nadler remarked that “[i]n some instances, the lack of enforcement may come down to a lack of will.” He argued that “[o]ur antitrust enforcers should not pull punches…[and] [w]e must ensure that the leadership at these agencies is committed to robust enforcement.” Nadler stated “[i]t is also important to adequately staff and resource the agencies as antitrust cases have become more resource-intensive and agency staff is faced with investigating some of the wealthiest companies of all time.”

Committee Ranking Member James Jordan (R-OH) repeated Republican talking points on Section 230 and decried the refusal of Democrats to hold hearings on alleged bias of conservatives on social media platforms. Jordan made no comments or statement about antitrust and competition law, and as his remarks largely do not bear on the matter at hand, there is little point in writing them. One might generously describe his opening statement as a mashup of antitrust and Section 230. However, if one wishes to hear what some would consider his “passionate” remarks on Section 230, click here.

Brookings Institute Visiting Fellow William Baer stated

  • So where do we go from here? One strategy has the antitrust enforcers developing new policy guidance in areas such as vertical mergers, standard essential patents, and high tech platforms to nudge the courts towards a less skeptical view of the need for assertive enforcement. The joint DOJ/FTC Horizontal Merger Guidelines have, as I noted earlier, over time increasingly been relied on by the courts as providing a framework for determining whether the combination of two rivals risks harm to consumers and to competition.
  • There are at least two reasons to doubt whether reliance on that strategy will be sufficient. First, it took years for the courts to embrace the soundness of the merger guidelines—indeed more than a decade. Can we afford to wait that long? Second, there is no guarantee that the courts will embrace that new guidance. The mindset that antitrust enforcers are more likely to be wrong than right, and that as a result, we should at all costs avoid the risk of over-enforcement, is pretty well-entrenched in antitrust jurisprudence. Absent some further direction from Congress, those biases are unlikely to change.
  • So, I think the Subcommittee is doing the right thing by taking a hard look at changes to current law that will encourage the courts and empower the antitrust enforcers to be more assertive in challenging conduct and consolidation that risks creating or enhancing market power. These changes need not be dramatic. By incorporating presumptions that certain behaviors are likely to reduce competition, by making it clearer that showing a risk of a reduction in competition is sufficient, and by emphasizing that anticompetitive effects are not limited to price effects and include quality and innovation competition, Congress can make a meaningful difference.
  • The other thing Congress can and should do is provide adequate resources to the antitrust enforcement agencies. Today, we are not doing that, not by a longshot. A recent report by Michael Kades of the Washington Center for Equitable Growth found that, in real dollar terms, we are spending 18 percent less on antitrust enforcement than in 2000. Officials at the Antitrust Division tell me the organization ended fiscal year 2019 with just 594 employees, compared to 795 employees at the same time 10 years earlier. This, as Kades notes, is occurring in the context of significant growth in the economy over that same time.
  • The dollars and resources need to be increased for a number of reasons. First, as I have discussed, the courts today place a high burden on the government to prove an antitrust violation. That means the enforcers need to devote significant resources to investigating and proving their cases, including extensive document reviews, witness interviews, depositions, and expert opinion—industrial organization economists and others. It is time-consuming; it is expensive; and it is resource-intensive. As an example, in 2016, the Antitrust Division challenged two proposed mergers that would have dramatically consolidated the health insurance industry: Anthem’s proposed acquisition of Cigna and Aetna’s effort to acquire Humana. We successfully persuaded the courts to enjoin both deals, but getting there required the commitment of 25 to 30 percent of the Division’s professional staff. My colleagues in the FTC’s Bureau of Competition were similarly constrained as they litigated in multiple forums during that same time. That inevitably meant other matters were understaffed. That is no way to ensure adequate enforcement.
  • But second, more resources would allow for after-action studies of what happened in markets where the agencies decided not to bring enforcement actions or where the courts rejected an antitrust challenge. Developing that data would allow the antitrust enforcers to demonstrate to the courts what happens when there is under-enforcement. I urge the Subcommittee to consider carefully the submission of former FTC Chairman Tim Muris where he details how a series of retrospective studies by FTC economists during his tenure allowed the agency to persuade the courts that hospital consolidation in local markets across the country had resulted in significant increases in costs. The antitrust enforcers need more resources to develop the evidence needed to persuade the courts that antitrust enforcement can and does make a positive difference.

Conservative Partnership Institute Senior Director of Policy Rachel Bovard asserted

A comprehensive approach to combating Big Tech’s power will include reforms to Sec. 230, Big Tech’s congressionally created liability shield. Multiple Sec. 230 reform efforts are simultaneously happening at once, but all of them share one common goal: to make the recipients of Sec. 230’s benefits more transparent and accountable to their users in exchange for the statutory legal privilege they receive.

The initial intent and purpose of Section 230 was to provide a very narrow immunity designed to give platforms the freedom to filter content that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” without fear of liability.

Unfortunately, embedded in that section is a catch-all phrase, “otherwise objectionable,” that gives tech platforms discretion to censor anything that they deem “otherwise objectionable.” Such broad language lends itself in practice to arbitrariness.

The DOJ recently put forward a proposal that aims to address both viewpoint bias and the harmful content which Sec. 230 enables.

Many on the Right take issue with the use of antitrust enforcement against Big Tech firms. Their claims are generally summarized as follows:

Antitrust is being used by conservatives as a political tool to go after Big Tech platforms they do not like.

Antitrust cannot solve speech concerns

Discussions of antitrust enforcement are actually proxies for updating antitrust law away from the consumer welfare standard.

I will take these claims one at a time. First, the bipartisan efforts and wide-ranging remedies under discussion make clear that there is growing awareness among legislators that Big Tech’s unchecked power in specific circumstances warrants review. Big Tech isn’t being singled out for its own sake; rather, specific actions – antitrust violations, viewpoint discrimination, and the facilitation of various criminal acts – are being targeted.

Second, antitrust’s application to “speech concerns” may not be direct, but proper enforcement of the law against violations could certainly have tangential effects. Antitrust enforcement does not occur in a vacuum. Enforcing against the monolithic dominance of these companies in one sector, if warranted, could free up the market in such a way that concerns over viewpoint bias could be competed away in ways which Big Tech’s market dominance now makes impossible.

Third, it is the view of myself and the Internet Accountability Project that our antitrust laws do not need to be updated; that the laws on the books are sufficient for tackling per se violations of antitrust as they exist in the tech sector. Antitrust enforcement is law enforcement. As conservatives, we do not support legal amnesty for those who violate our nation’s laws – and this should extend to corporations who violate competition laws in the market.

Open Markets Institute Director of Enforcement Strategy Sally Hubbard recommended the following:

  • Beginning in the early 1980s, however, the Reagan administration, in tandem with introducing the flawed Chicago School ideology to competition policy, radically increased the role that economists played in determining what constitutes a just outcome in the enforcement of antitrust law. This included doubling the number of economists within the division by 1986, to nearly three economists for every 10 lawyers. And it included the decision to elevate the division’s chief economist to the role of deputy assistant attorney general.
  • The Open Markets Institute believes that these changes played a major role in subverting the ability of the agencies to enforce U.S. antitrust law according to the original will of the American people as expressed through Congress. We further believe that Congress should now entirely reassess the role of economics within competition policy and reassess the relative levels of funding for economics within the agencies.
  • The Open Markets Institute believes that Congress, in its oversight capacity, must require greater reporting and transparency from the FTC about its investigative and enforcement efforts regarding platform monopolists. Congress should hold the FTC accountable for weak enforcement, such as the FTC’s recent fines against Facebook and YouTube for repeated consent decree violations. Fines alone are not enough, because they don’t change platform monopolists’ destructive business models and anti-competitive practices. Google has handed over more than $9 billion to the European Commission since 2017 for antitrust violations, but Google has not fundamentally changed the ways that it excludes competition.
  • Congress should also pressure the FTC to use its 6(b) authority to study targeted advertising, disinformation, election interference, the monopolization of digital ad revenue by digital platforms, and other harms related to platform monopolies.
  • In the digital marketplace, privacy and monopoly are intricately related. Meaningful privacy reforms would, for instance, undercut Facebook’s and Google’s dominance because comprehensive tracking of users is required to support the platforms’ targeted digital advertising business models, and privacy reforms would undercut Amazon’s dominance because it uses data to disadvantage its competitors. Massive data collection allows tech giants to strengthen their monopoly power and erect barriers to competitive entry.
  • The Open Markets Institute believes that Congress should reform Section 230 of the Communications Decency Act, which at present gives the platform monopolists far-reaching legal immunity for actions that other corporations must police against. Section 230 was first enacted nearly a quarter of a century ago as part of the Telecommunications Act of 1996. It grants broad immunity to “interactive computer services” from lawsuits seeking to hold the services liable for information published by an “information content providers.”
  • One example of an unintended consequence of Section 230 is that dominant platforms remain legally unaccountable for the libel, fake news, fraudulent content, bots, and hate speech flowing across their platforms. At the same time, however, these firms are uniquely and unfairly able to profit from the spread of such content, because they sell advertising next to it. But these platforms are in competition for advertising revenues with traditional publishers, who do not have Section 230 immunity. In addition to reforming Section 230, another possible solution to these imbalanced terms of competition would be to prohibit entities enjoying Section 230 immunity from selling advertising.
  • The Open Markets Institute also calls on Congress to make it easier for citizens to bring class action lawsuits. The American people developed class action lawsuits, in ways that supplement government enforcement, to help deter corporations from abusing their power. In recent years, however, courts have used the constructs of antitrust injury and antitrust standing to erect many procedural obstacles that limit who can sue under the antitrust laws and under what circumstances they can sue.57 These obstacles clearly flaunt the intent of Congress. Procedural barriers to private class actions, including the widespread use of clauses that require people harmed by monopolization to seek arbitration instead of suing in court, should also be eliminated.

Washington Center for Equitable Growth Director of Markets and Competition Policy Michael Kades stated

  • First, we need legislation, not just enforcement actions. This may sound obvious, but legal requirements should efficiently distinguish procompetitive conduct from anticompetitive conduct. Over the past 40 years, however, the federal courts, showing an almost neurotic fear of overenforcement, have increased burdens on plaintiffs in antitrust cases and narrowed the scope of antitrust law.
  • One example underscores this point. Arguably, the most significant monopolization case in U.S. history was the government’s successful break-up of the American Telegraph and Telephone Company in the 1980s. Under current case law, it is questionable that the government could pursue its claim under today’s standards. This development should shock every member of Congress. But it is of particular concern because the central issue in AT&T was its refusal to connect its long-distance competitor MCI to local phone exchanges—in other words, freezing out competitors—one of the major concerns raised in the course of the Committee’s investigation. My written testimony includes a letter I signed with 11 other economists and lawyers. (see Appendix A). All of them have served in the government. Many of them have defended companies in antitrust investigations. And all of them agree that:
    • the antitrust laws, as interpreted and enforced today, are inadequate to confront and deter growing market power in the U.S. economy and unnecessarily limit the ability of antitrust enforcers to address anticompetitive conduct in the digital markets that the Committee is investigating.
  • That letter I signed provides a number of suggested reforms to restore the vitality of the antitrust laws, which
    • Nullify existing precedent that limits antitrust actions,
    • Clarify that the antitrust laws protect potential competition,
    • Establish legal rules that, in appropriate cases, require defendants to prove their conduct does not harm competition, and
    • Increase penalties and enforcement resources
  • The courts have made it abundantly clear that they believe the antitrust laws have little role to play in promoting competition because the market can fix itself. And, therefore, do no harm is the prevailing approach. Unless Congress takes a different view by passing legislation, dominant firms will have little concern about the antitrust laws limiting their conduct.

Antonin Scalia Law School Professor Tad Lipsky argued:

  • U.S. antitrust statutes and enforcement institutions are well-adapted to handle competition problems emerging in the digital economy. I have also recommended two initiatives to further improve our antitrust enforcement system so that anticompetitive practices are correctly identified and eliminated, while assuring that procompetitive conduct is not excessively burdened by inappropriate forms of public intervention:
    • Specifically, I support the recommendation made in the March, 2017 Report and Recommendations by the International Competition Policy Experts Group (of which I was a member) to establish and fund a dedicated office within the Executive Branch to identify and eliminate foreign-jurisdiction antitrust enforcement practices that limit competition and innovation by U.S. firms. Of greatest concern are those non-U.S. antitrust regimes that incorporate standards and objectives in tension or conflict with dynamic free-market competition (e.g., protection of local competitors or promotion of “national champions”), or that unduly restrict the procedural defense rights of business firms that are subject to antitrust investigations and cases.
    • Second, I support efforts to ensure more effective separation of prosecutorial and adjudicative functions within the Federal Trade Commission, such as designating the Director of the Bureau of Competition as an officer of the Executive Branch, with appointment and supervision of the Director similar to those applicable to the Assistant Attorney General for Antitrust.

Demos President Sabeel Rahman stated:

  • I would like to outline a policy framework for legislative and regulatory action in response to the problems of tech firms, monopoly power, and infrastructural power.
  • There are three policy strategies in particular that Congress and regulators at the FTC, FCC, and elsewhere should consider:
    • First, we must limit the dangers of infrastructural power by breaking up dominant firms, imposing firewalls and structural limits on the power of these firms to control essential infrastructure. This means developing policies that include separation by size (“breaking up” market dominant firms); separation by function (splitting platforms from commerce, for example); laws requiring interoperability to mitigate against undue consolidation and merger activity; and laws prohibiting tying contracts or predatory pricing. These limits can be legislated, and enforced by federal regulators.
    • Second, we should through legislation and regulatory enforcement impose public obligations and basic standards of nondiscrimination, fair dealing, fair pricing, and accountability over these infrastructural firms. Over a century ago, common carriage requirements were critical to preventing discrimination on railroads, and ensuring that all comers could access new transportation infrastructure to engage in commerce and travel. Historically, public obligations have also encompassed requirements for basic health and safety—for example, assuring that goods are not toxic or harmful to consumers. It was the rise of these kinds of public obligations that helped drive the development of our modern forms of labor, consumer, and business regulations. Similar public obligations were at the heart of the net neutrality debates in previous years: requirements of common carriage and anti-throttling obligations were meant to ensure that internet service providers did not leverage their control over access to the internet to favor paying information providers or business allies over other content providers and businesses.
    • Third, we should consider the degree to which some of these essential infrastructures can be provided not by private, profit-seeking firms, but by public providers, either on an exclusive basis or as “public options” that compete alongside private alternatives. In some markets, a public alternative could help remedy the problems of infrastructural power, especially if the public option operates on a non-profit basis, with statutory requirements for nondiscrimination, fair pricing, and the like. These public options could provide a ‘plain vanilla’, non-exclusionary alternative—which in turn would impose competitive pressures on private firms to match these socially-beneficial terms of service. In the internet service debate for example, the attempts to create municipal broadband networks represents a “public option” response to the infrastructural power of internet service providers like Comcast or Spectrum.

Fordham University School of Law Professor Zephyr Teachout said her “testimony will focus on three actions Congress should take immediately:

  • Reassert Congressional supremacy in the relationship between Courts and Congress in Antitrust Policy
    • Congress must overturn via legislation bad Supreme Court decisions, and reassert Congressional supremacy over economic policy. The Sherman Act, the Clayton Act, and our antitrust laws are not Constitutional provisions over which Congress must defer interpretation to the Supreme Court. They are federal laws, passed by this body, and when they are misinterpreted by courts, Congress must act. For 40 years it has failed to do so, and stood by while the Supreme Court rewrote federal antitrust policy.
    • For example, in a trio of cases the Supreme Court reinterpreted the law in a way that essentially ripped apart our existing predatory pricing laws. Congress did not act. There were no hearings on these cases and no legislative action. Anti-predatory behavior laws are a key tool for reigning in the abuses of Amazon, Google, and Facebook.
  • Pass Laws Requiring Structural Separation/Line of Business Laws
    • Amazon, Google, Facebook and Apple control market access to central parts of our economy, and directly compete with businesses that use their markets. These platforms abuse their chokepoint power to demand high private taxes from suppliers, copy, kill or acquire competitors, and then use their ill-gotten profits to subsidize adventures into new markets where they repeat their abuse of power strategies.
    • Congress should pass a structural separation law delineating a clear “single line of business” rule for any large data company, using revenue, role in data collection and sale, and consumer footprint. For instance, it could draw of the kind of framework used in California’s recent AB-1790, which used the following definition: “An online e-commerce marketplace with more than 200,000,000 active customer accounts that, in whole or in part, offers to customers for sale goods or services sold by companies that are not owned by the online e-commerce marketplace.”
  • More Congressional Investigations
    • The CEO hearing of this subcommittee was a paradigm for what Congressional hearings should be. You were prepared, serious, and detailed, and brought forward important testimony because of the deep investigative work of the last year. Your investigation showed what a serious, demanding, unafraid assertion of public power over abusive companies looks like. And it shouldn’t just be the antitrust subcommittee. The labor committee should bring in Uber and Lyft in for tough questioning about how they use psychological techniques and big data on drivers, and how pay and prices are calculated. The small business committee (perhaps in conjunction with this committee) should interrogate Postmates, GrubHub, DoorDash, and UberEats about the evidence that they have been charging restaurants exorbitant commission fees, stealing tips, creating impostor restaurant websites, and draining revenue from restaurants facing a global pandemic.
    • While Congressional leaders may have worried in the past about whether the Supreme Court would permit this kind of investigation, in Trump v. Mazars this summer, the Court gave Congress a green light for investigations into big corporations. Justice John Roberts made clear that Congress is at the peak of its power when investigating economic behavior in service of prospective legislation. The Court says Congress’ power to investigate corporate actors in the process of understanding how it should respond legislatively is “broad” and “indispensable.” Investigations are necessary for wise and effective legislation. It is the job of Congress to stand between private tyrants and the people, and in service of that job, it must investigate rigorously.

University of Pennsylvania Carey Law School Professor Christopher Yoo stated:

  • In sifting through the various reform proposals that have been suggested, I would encourage the Subcommittee to keep in mind two key precepts. The first is the importance of maintaining antitrust’s longstanding commitment to protecting consumers over competitors and to promoting innovation. The second is that many remedies work far worse in practice than they sound in theory. I will do so by examining two proposed reforms: the imposition of line of business restrictions and mandating data portability and interoperability.
    • Anyone familiar with the proposed imposition of line of business restrictions will recognize it as the approach that dominated telecommunications law during the 1980s and 1990s. That experience raises a number of cautionary notes. As an initial matter, line of business restrictions raised difficult definitional problems. The problem of characterizing the precise limits of a line of business is difficult under the best of circumstances, but it becomes unmanageable in industries undergoing rapid technological change. The inflexibility of the line of business restrictions harmed consumers to the tune of over $1 billion per year.
    • This history illustrates how line of business restrictions can harm innovation. Consider further the history of mobile operating systems. In 2005, just fifteen years ago, the U.S. market was dominated by Palm, Blackberry, Symbian, and Microsoft. Apple iOS appeared on the scene in 2007, with Android following in 2008. These new entrants employed innovative new business models that expanded beyond their original lines of business: iOS embraced vertical integration and required consumers to pay significant prices, while Android did not charge for its system and relied on third-party payments. In so doing, these new entrants shook up what had become a sleepy category in ways that provided tremendous benefits for consumers. Total smartphone sales exploded, growing 50% annually for the next five years.
    • Another commonly advanced proposal is to require data portability and interoperability. Interestingly, large platforms such as Google and Facebook already provide for data portability, and yet consumers almost never available themselves of this feature. The difficulties faced by past attempts to impose portability and interoperability mandates help explain why data portability has proven so hard to implement.
    • For a data portability regime to be meaningful, the data must be configured in a standardized format, otherwise the data generated by one system will not be useful to any other system. The problem is that different companies structure their data in radically different ways. In addition, reconfiguring data is typically prohibitively expensive. The choice of data format thus threatens to impose unleash a difficult fight over how to standardize the data and to create significant disadvantages for whoever loses that fight.
    • In addition, standardizing data formats create significant risks of depriving consumers of the benefits of innovation. The structure of data largely determines what types of uses are and are not possible. Forcing data into a particular format would inevitably preclude important types of innovation.

© Michael Kans, Michael Kans Blog and, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and with appropriate and specific direction to the original content.

Image by mohamed Hassan from Pixabay

Big Tech CEOs Appear At Hearing

In a marathon hearing, Democrats make their case on why big tech is engaged in antitrust and anti-competitive practices. Whether this hearing and a future report change anything is an open question.

First things first, if you would like to receive my Technology Policy Update, email me. You can find some of these Updates from 2019 and 2020 here.

On  29 July, the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held its sixth hearing on “Online Platforms and Market Power” titled “Examining the Dominance of Amazon, Apple, Facebook, and Google” with the heads of Amazon, Apple, Google, and Facebook that lasted more than five hours. Democrats largely focused their questions on the documents and information provided by the companies to make the case each had engaged in practices that are at the least anti-competitive if not illegal under the Sherman and Clayton Antitrust Acts. On the other hand, Republicans largely avoided discussing anti-competitive or antitrust issues except in connection with lines of questioning regarding social media moderation of content that is allegedly biased against conservatives and the People’s Republic of China (PRC).

The subcommittee is expected to issue its report in the near term with possible recommendations on how to amend US law to address the problems turned up during the investigation. However, the Republican-controlled Senate and the White House will likely not be receptive to legislation to update the US’ antitrust or anti-competitive laws. And yet, a Democratic White House and Senate may prove more receptive and able to effect changes in these laws. It remains to be seen whether the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) bring broad cases against these companies for potential violations. Likewise, groups of states are collectively investigating Google and Facebook, and the attorney general of California is looking into Amazon’s business practices. Finally, the European Commission (EC) is also investigating a number of this companies as its new leadership considers the size and power of tech companies a central issue in the European Union.

Subcommittee Chair David Cicilline (D-RI) asserted “[a]lthough these four corporations differ in important and meaningful ways, we have observed common patterns and competition problems over the course of our investigation:

  • First, each platform is a bottleneck for a key channel of distribution. Whether they control access to information or to a marketplace, these platforms have the incentive and ability to exploit this power. They can charge exorbitant fees, impose oppressive contracts, and extract valuable data from the people and businesses that rely on them.
  • Second, each platform uses its control over digital infrastructure to surveil other companies—their growth, business activity, and whether they might pose a competitive threat. Each platform has used this data to protect its power, by either buying, copying, or by cutting off access for any actual or potential rival.
  • Third, these platforms abuse their control over current technologies to extend their power. Whether it’s through self-preferencing, predatory pricing, or requiring users to buy additional products, the dominant platforms have wielded their power in destructive, harmful ways in order to expand.

Cicilline stated that

  • At today’s hearing we will examine how each of these companies has used this playbook to achieve and maintain dominance—and how their power shapes and affects our daily lives. Why does this matter? Many of the practices used by these companies have harmful economic effects. They discourage entrepreneurship, destroy jobs, hike costs, and degrade quality. Simply put: They have too much power. This power staves off new forms of competition, creativity, and innovation. And while these dominant firms may still produce some new innovative products, their dominance is killing the small businesses, manufacturing, and overall dynamism that are the engines of the American economy.
  • Several of these firms also harvest and abuse people’s data to sell ads for everything from new books to dangerous “miracle” cures. When everyday Americans learn how much of their data is being mined, they can’t run away fast enough. But in many cases, there is no escape from this surveillance because there is no alternative. People are stuck with bad options. Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option. We are here today because that choice is no longer possible.

Cicilline stated “I am confident that addressing the problems we see in these markets will lead to a stronger, more vibrant economy…[b]ecause concentrated economic power also leads to concentrated political power, this investigation also goes to the heart of whether we, as a people, govern ourselves, or whether we let ourselves be governed by private monopolies.”

Subcommittee Ranking Member James Sensenbrenner (R-WI) lauded the technological innovations the four companies have provided Americans that made coping with the COVID-19 pandemic easier. He reiterated that “being big is not inherently bad” and asserted the opposite was true because in the US success should be rewarded. Sensenbrenner said the hearing is designed to help the subcommittee better understand the roles the companies play in the digital marketplace and the effect on consumers and the public at large. He said that data drives the marketplace and those who control the data, in essence, control the marketplace. Sensenbrenner said there are broader questions around data such as who owns it; do they share data with their customers or competitors; what is the fair market value of that data; is there anything monopolistic in acquiring this data; and what are the implications of monetizing data.

Sensenbrenner claimed that since the “tech investigation” began, “we have heard rumblings from many” who say your companies have grown too large. He stated that since the hearing was announced the complaints have gotten even louder. Sensenbrenner said he found these complaints informative, but he did not plan on litigating each complaint today. He asserted antitrust law and the consumer welfare standard have served the US well for over a century and have provided a framework for some of the US’s most successful and innovative companies. Sensenbrenner allowed that as the economy evolves, antitrust law may need updating to meet the needs of the nation and its consumers. He stated his concern that market dominance in this space is ripe for abuse, “particularly when it comes to free speech,” as Facebook, YouTube, and Twitter have become the public space of today as political debate unfolds in real time. Sensenbrenner said that reports of “dissenting views, often conservative views” are targeted or censored are seriously troubling. He stressed that “conservatives are consumers, too” and “they need the protection of antitrust laws.” He argued that the power to shape debate carries tremendous responsibility.

Sensenbrenner said facts should guide the inquiry. He noted the companies are large, successful, and powerful, all of which are fine. He asserted he wanted to leave the hearing with a better picture of how these qualities affect consumers.

Amazon CEO Jeff Bezos claimed

  • The global retail market we compete in is strikingly large and extraordinarily competitive. Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the U.S. Unlike industries that are winner-take-all, there’s room in retail for many winners. For example, more than 80 retailers in the U.S. alone earn over $1 billion in annual revenue.
  • Like any retailer, we know that the success of our store depends entirely on customers’ satisfaction with their experience in our store. Every day, Amazon competes against large, established players like Target, Costco, Kroger, and, of course, Walmart—a company more than twice Amazon’s size. And while we have always focused on producing a great customer experience for retail sales done primarily online, sales initiated online are now an even larger growth area for other stores. Walmart’s online sales grew 74% in the first quarter.
  • And customers are increasingly flocking to services invented by other stores that Amazon still can’t match at the scale of other large companies, like curbside pickup and in-store returns. The COVID-19 pandemic has put a spotlight on these trends, which have been growing for years. In recent months, curbside pickup of online orders has increased over 200%, in part due to COVID19 concerns. We also face new competition from the likes of Shopify and Instacart—companies that enable traditionally physical stores to put up a full online store almost instantaneously and to deliver products directly to customers in new and innovative ways—and a growing list of omnichannel business models. Like almost every other segment of our economy, technology is used everywhere in retail and has only made retail more competitive, whether online, in physical stores, or in the various combinations of the two that make up most stores today. And we and all other stores are acutely aware that, regardless of how the best features of “online” and “physical” stores are combined, we are all competing for and serving the same customers. The range of retail competitors and related services is constantly changing, and the only real constant in retail is customers’ desire for lower prices, better selection, and convenience.
  • It’s also important to understand that Amazon’s success depends overwhelmingly on the success of the thousands of small and medium-sized businesses that also sell their products in Amazon’s stores. Back in 1999, we took what at the time was the unprecedented step of welcoming third-party sellers into our stores and enabling them to offer their products right alongside our own. Internally, this was extremely controversial, with many disagreeing and some predicting this would be the beginning of a long, losing battle. We didn’t have to invite third-party sellers into the store. We could have kept this valuable real estate for ourselves. But we committed to the idea that over the long term it would increase selection for customers, and that more satisfied customers would be great for both third-party sellers and for Amazon. And that’s what happened.
  • Within a year of adding those sellers, third-party sales accounted for 5% of unit sales, and it quickly became clear that customers loved the convenience of being able to shop for the best products and to see prices from different sellers all in the same store. These small and medium-sized third-party businesses now add significantly more product selection to Amazon’s stores than Amazon’s own retail operation. Third-party sales now account for approximately 60% of physical product sales on Amazon, and those sales are growing faster than Amazon’s own retail sales. We guessed that it wasn’t a zero sum game. And we were right—the whole pie did grow, third-party sellers did very well and are growing fast, and that has been great for customers and for Amazon. There are now 1.7 million small and medium-sized businesses around the world selling in Amazon’s stores. More than 200,000 entrepreneurs worldwide surpassed $100,000 in sales in our stores in 2019. On top of that, we estimate that third-party businesses selling in Amazon’s stores have created over 2.2 million new jobs around the world.

Apple CEO Tim Cook asserted

  • The smartphone market is fiercely competitive, and companies like Samsung, LG, Huawei and Google have built very successful smartphone businesses offering different approaches.
  • Apple does not have a dominant market share in any market where we do business. That is not just true for iPhone; it is true for any product category.
  • What motivates us is the continuous improvement of the user experience, and we focus relentlessly on and invest significantly in new breakthroughs, innovative features and deepening the principles that set us apart.
  • Privacy and security are key examples of this drive. This is true for the iPhone and for every device we make. We build products that, from the ground up, help users protect their fundamental right to the privacy of their personal data. This principle is foundational and touches everything else we do.
  • We created the App Store in 2008 as a feature of the iPhone. Launching with a little more than 500 apps, it was our ambitious attempt to dramatically expand the features and customizability of every user’s device. We wanted to create a safe and trusted place for users to discover apps—and a means of providing a secure and supportive way for developers to develop, test and distribute apps to iPhone users globally.
  • Apple continuously improves, and provides every developer with cutting-edge tools like compilers, programming languages, operating systems, frameworks and more than 150,000 essential software building blocks called APIs. These are not only powerful, but so simple to use that students in elementary schools can and do make apps.
  • The App Store guidelines ensure a high-quality, reliable and secure user experience. They are transparent and applied equally to developers of all sizes and in all categories. They are not set in stone. Rather, they have changed as the world has changed, and we work with developers to apply them fairly.
  • For the vast majority of apps on the App Store, developers keep 100% of the money they make. The only apps that are subject to a commission are those where the developer acquires a customer on an Apple device and where the features or services would be experienced and consumed on an Apple device.
  • Apple’ s commissions are comparable to or lower than commissions charged by the majority of our competitors. And they are vastly lower than the 50 to 70 percent that software developers paid to distribute their work before we launched the App Store.
  • In the more than a decade since the App Store debuted, we have never raised the commission or added a single fee. In fact, we have reduced them for subscriptions and exempted additional categories of apps. The App Store evolves with the times, and every change we have made has been in the direction of providing a better experience for our users and a compelling business opportunity for developers.
  • I am here today because scrutiny is reasonable and appropriate. We approach this process with respect and humility. But we make no concession on the facts.

Alphabet CEO Sundar Pichai contended

  • Google operates in highly competitive and dynamic global markets, in which prices are free or falling, and products are constantly improving. Today’s competitive landscape looks nothing like it did 5 years ago, let alone 21 years ago, when Google launched its first product, Google Search.
  • For example, people have more ways to search for information than ever before — and increasingly this is happening outside the context of only a search engine. Often the answer is just a click or an app away: You can ask Alexa a question from your kitchen; read your news on Twitter; ask friends for information via WhatsApp; and get recommendations on Snapchat or Pinterest. When searching for products online, you may be visiting Amazon, eBay, Walmart, or any one of a number of e-commerce providers, where most online shopping queries happen.
  • Similarly, in areas like travel and real estate, Google faces strong competition for search queries from many businesses that are experts in these areas.
  • A competitive digital ad marketplace gives publishers and advertisers, and therefore consumers, an enormous amount of choice. For example, competition in ads — from Twitter, Instagram, Pinterest, Comcast and others — has helped lower online advertising costs by 40% over the last 10 years, with these savings passed down to consumers through lower prices.
  • We also deliberately build platforms that support the innovation of others. Using Android — a product I worked on for many years — thousands of device makers and mobile operators build and sell devices without any licensing fees to us or any requirement to integrate our products. This greatly reduces device prices, and today billions of consumers around the globe are now able to afford cuing-edge smartphones, some for less than $50. And in doing so they are able to access new opportunities — whether it’s sharing a video with friends and family around the world, gaining an education for themselves or their children, or starting a business. Competition also sets higher standards for privacy and security. I’ve always believed that privacy is a universal right and should be available to everyone, and Google is committed to keeping your information safe, treating it responsibly, and putting you in control of what you choose to share. We also never sell user information to third parties. But more must be done to protect users across industries, which is why we’ve long supported the creation of comprehensive federal privacy laws.

Facebook CEO Mark Zuckerberg asserted

  • Our story would not have been possible without U.S. laws that encourage competition and innovation. I believe that strong and consistent competition policy is vital because it ensures that the playing field is level for all. At Facebook, we compete hard, because we’re up against other smart and innovative companies that are determined to win. We know that our future success is not guaranteed, especially in a global tech industry defined by rapid innovation. The history of technology is often the history of failure, and even industry leading tech companies fail if they don’t stay competitive. This is why we’re focused on delivering better services for people and businesses, and competing as vigorously as we can within the rules.
  • Although people around the world use our products, Facebook is a proudly American company. We believe in values — democracy, competition, inclusion and free expression — that the American economy was built on. Many other tech companies share these values, but there’s no guarantee our values will win out. For example, China is building its own version of the internet focused on very different ideas, and they are exporting their vision to other countries. As Congress and other stakeholders consider how antitrust laws support competition in the U.S., I believe it’s important to maintain the core values of openness and fairness that have made America’s digital economy a force for empowerment and opportunity here and around the world.
  • Like many companies, we’ve both built our own products from the ground up, and we’ve moved others forward through mergers and acquisitions. Our acquisitions have helped drive innovation for people who use our own products and services and for the broader startup community. Acquisitions bring together different companies’ complementary strengths. When you acquire a company, you can benefit from their technology and talent, and when you are acquired you get access to resources and people you otherwise might never have been able to tap into.
  • Facebook has made Instagram and WhatsApp successful as part of our family of apps. Instagram and WhatsApp have been able to grow and operate their services using Facebook’s bespoke, lower-cost infrastructure and tackle spam and harmful content with Facebook’s integrity teams and technology.
  • Following its acquisition, Instagram was able to get help stabilizing infrastructure and controlling runaway spam. It also benefited from the ability to plug into Facebook’s self-serve ads system, sales team and existing advertiser relationships to drive monetization, and was able to build products including IG Direct and IG Video that used Facebook’s technology and infrastructure. Before it was acquired, WhatsApp was a paid app with a reputation for secure communications; together we built on that by introducing end-to-end encryption and making it free to use. Since its acquisition, WhatsApp has also been able to develop products such as voice and video calling that were built on Facebook’s technology stack.
  • These benefits came about as a result of our acquisition of those companies, and would not have happened had we not made those acquisitions. We have developed new products for Instagram and WhatsApp, and we have learned from those companies to bring new ideas to Facebook. The end result is better services that provide more value to people and advertisers, which is a core goal of Facebook’s acquisition strategy.

© Michael Kans, Michael Kans Blog and, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and with appropriate and specific direction to the original content.

Image by Jorge Guillen from Pixabay