Do The ‘Big Four’ Tech Monopolies Deserve Their Antitrust Investigation? Yes

Do The ‘Big Four’ Tech Monopolies Deserve Their Antitrust Investigation? Yes

Antitrust enforcement has not always been perfect, but in this instance it is apt regarding the Big Four: Facebook, Google, Apple, and Amazon.
Kyle Sammin
By

Are the big social media sites monopolies? Are search engines? Do Facebook, Amazon, Google, Apple, and the rest so thoroughly dominate their fields — or work in combination to do so — to constitute a restraint of trade and harm to the consumer? The Department of Justice’s Antitrust Division announced Tuesday that it aims to find out. The results of that investigation could drastically alter the internet landscape.

Fresh on the heels of a record-breaking $5 billion fine against Facebook for privacy violations, the antitrust effort looks at first like more of the same. But while privacy investigations are well-established, antitrust efforts against Facebook and the rest have until now been purely theoretical, as often on the left as on the right, but in neither case anywhere close to happening. Now, in a wide-ranging effort, the DOJ will determine if the increasing calls for regulation of social media will be allowed to become reality.

The Internet Isn’t What It Used To Be

DOJ’s press release says the department is “reviewing whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” First on any list of internet monopolies must be Google, which has dominated the online search market for years.

Google got there the way most businesses did in the early, free days of the internet: by being good at what it did. Only ‘90s kids may remember Lycos, AltaVista, and Ask Jeeves, but these were once big names in internet search. It was a new industry, as was the internet, and competition was fierce. Google entered later, but so superior was its product that other search engines rapidly became obsolete.

Up to that point, it is a fine American success story. Facebook’s path to the top was similar. Friendster and MySpace pioneered that type of social media site. Facebook proved more attractive, first to college students and later to anyone who wanted to open an account. After losing money for years, Amazon has become the greatest retail marketplace the world has ever known. And Apple’s twisting origin story is well known since the books and movies about its late founder, Steve Jobs, became so popular.

Each was a success story in fair competition, business against business, vision against vision. It’s what came next that began to concern people. The so-called Big Four of tech — Facebook, Google, Apple, and Amazon — worked to maintain their status at the top of their fragment of the industry, not just by improving their products (although that sometimes happened) but by integrating across the entire tech sector.

Using one product from their suite of businesses now led inexorably to using another, and one company became a web of products that made escape increasingly difficult. Instead of being merely the best option, the Big Four each sought to make other options obsolete.

In doing so, the Big Four have become more powerful and have begun to use their power in ways that inhibit the average user. Facebook’s algorithms deliver us the content the company thinks we want to see — or maybe the content it wants us to see. Google says its search functions likewise promotes results it thinks we want, but increasingly it seems really to promote those results it thinks we ought to want, even suspending a candidate’s political advertising when convenient. In choosing which results to show and which to hide, these companies are imposing their editorial judgment on our marketplace of ideas. People have noticed, and so has their government.

There’s Precedent For Investigating Tech Monopolies

Tech companies have been subject to antitrust investigation before, most famously in the DOJ’s case against Microsoft in the late 1990s. There, too, a tech giant had established dominance in one field, operating systems, and sought to leverage that advantage into others, such as browsers, business software, and even publishing. The investigation and trial dragged on for years, as did a similar action by the European Union.

In the American action, the district court found in 2001 that Microsoft’s actions violated the Sherman Antitrust Act. On appeal, the two sides came to a settlement that required Microsoft to let other companies integrate with Windows on an equal basis, with third parties monitoring the arrangement to ensure compliance. By then, competition was already eroding the advantages of, for example, Microsoft’s web browser, but the settlement ensured the trend would continue.

Microsoft’s main product, the Windows operating system, is probably one of which market dominance was the result of consumer choice. People who didn’t like it had other options, but most never bothered to take them because Windows worked. It still works. Most of us continue to use it.

But in integrating other technology and excluding competition in that arena, the company leveraged its natural advantage into an unnatural one. With web browsers, the choice was no longer between a variety of options, but between a default option that integrated with the system and others that took more effort to find and operate.

Is Antitrust Enforcement Conservative?

Small-government conservatives considering the new tech monopolies have to ask themselves: “Isn’t this all just market forces at work? Shouldn’t the government stay out of it and let the people choose?” If the people made Google into a monopoly by choosing to use its search engine, could they not just as easily dethrone it and elevate some other, better search service to the top ranks? After all, nothing stops them from typing another web address into their browser.

But as conservatives past and present have recognized, there are times corporate dominance is so great as to jam up a free market and require intervention. Adam Smith, in his seminal work The Wealth of Nations, wrote that a monopoly is “a great enemy to good management” and the opposite of a free market system, in that it exacts the highest price from the consumer while market forces work to bring about the lowest.

Smith was mostly writing of government-created monopolies, which were common in Europe at the time, but the idea that monopolies were oppressive to the common people’s liberties runs throughout his work. He disdained private combinations that sought to raise prices, although he suggested that it “is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.” His objection, then, was to the efficacy of anti-monopoly enforcement, not the theory behind it.

Milton Friedman is a more recent advocate of a hands-off approach to monopoly. In 1999, he criticized Microsoft’s competitors for welcoming the DOJ action against Microsoft. Friedman asked: “Is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process, that by the time this suit is over, who knows what the shape of the industry will be.”

That is, again, a criticism of our antitrust methods more than the idea of antitrust enforcement itself. “Antitrust very quickly becomes regulation,” Friedman said in that same article, and he was correct. But it does not necessarily have to become regulation. In his 1962 book Capitalism and Freedom, Friedman discussed the value of antitrust enforcement, saying that “exchange is truly voluntary only when nearly equivalent alternatives exist.”

While nongovernment monopolies were rare, Friedman wrote that they did exist and did inhibit a free market. “Monopoly implies the absence of alternatives and thereby inhibits effective freedom of exchange,” he wrote. “With respect to these, the problem is either to avoid governmental fostering of monopoly or to stimulate the effective enforcement of rules such as those embodied in our anti-trust laws.” Antitrust laws can fit within the conservative tradition —even the libertarian tradition — so long as the remedies do not devolve into simply more industry-stifling regulation.

Who Is the Customer Is Complicated

Traditional antitrust remedies made some sense in Microsoft’s case because its main product is a lot like traditional goods. Software isn’t the same as a gallon of kerosene or a bar of pig iron, but occupies a similar place in the market: It is something sold to customers for money. Microsoft’s customer is ultimately the same as Standard Oil’s customer: the end-user, the person paying for and using the product.

That is true to an extent with Amazon and Apple, but for Google, Facebook, Twitter, Snapchat and other tech giants that are a part of the social media sphere, determining the ultimate customer is more complicated. You don’t pay for your Facebook account with money. Likewise, your tweets, snaps, and searches are all free to you on their respective sites. While all of these companies have ways of making money off of you directly through promotions and the like, their main source of income is from advertisers. You, the consumer, are not the customer; you are the product.

That makes these companies’ monopolizing tendencies harder for the consumer to notice. It also will require new strategies for enforcement, strategies that more resemble regulation and less the simple corporate breakups that defined earlier antitrust efforts. Making Facebook and Google more transparent about what they display in our news feeds and search results would benefit consumers, but it also would require regulation and constant vigilance by the government or third parties. That will not delight small-government conservatives.

On the other hand, requiring disinvestment of ancillary products is a simple solution that has been used successfully against other monopolists in the past. Disentangling software from hardware, servers from sales sites, and messaging apps from social media all could make it easier for consumers to pick and choose the variety of internet services that, in their individual judgment, best benefit them. Is that not the essence of a free market?

DOJ’s look into Silicon Valley’s business practices is a departure, but it could be a welcome change. Antitrust enforcement has not always been perfect, but conservatives need not fear it. With the right approach, it could lead to a better experience for consumers and a freer, more efficient marketplace for all.

Kyle Sammin is a lawyer from Pennsylvania, a senior contributor to The Federalist, and the co-host of the Conservative Minds podcast. Read some of his other writing at his website, or follow him on Twitter at @KyleSammin.

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