State attorneys general may have found a way to bring antitrust suits against Big Tech, but it means overhauling the current antitrust framework and redefining competition.
In a letter to the Federal Trade Commission (FTC) filed in October, a group of state AGs claim companies like Amazon, Facebook and Google unfairly monopolize technology markets because they are so entrenched in the personal data of consumers.
In today’s data-driven markets, they argue, tech companies rely on troves of consumer data in order to target advertisements and turn a profit. The more data a company has, the more likely it is to succeed. Thus, data is the key to profit in today’s economy.
“However, the data collected is concentrated in a small number of dominant companies/platforms,” the AGs wrote. “Today around 90 percent of internet searches use one search engine, and over 90 percent of young people have a profile on one social media platform. Just 1 percent of smartphones use an operating system other than Apple’s iOS or Google’s Android.”
Therefore, data concentration in the hands of a few tech companies may limit competition.
“A firm’s deeply entrenched knowledge of individual consumers’ habits can make it nearly impossible for a rival or potential rival to target advertisements with comparable accuracy, or woo third-party online advertisers based on a dramatically thinner accumulation of historical data,” the AGs argue in their letter. “Studies show that the historical search improves search results up to 31 percent.”
FTC commissioner Rohit Chopra recently corroborated the AGs’ claims when he told the Senate Commerce Subcommittee on Consumer Protection, Product Safety and Data Security last week that “if you talk to investors, many will tell you that they’re not going to fund a start up unless they can figure out how to sell that company to an existing large incumbent like Google or Facebook.”
But there’s the a rub: economists don’t agree on how competition should be defined in a 21st century economy. The current approach to antitrust issues relies on the Chicago School of Economics definition of competition, which is, good competition leads to lower prices for goods and services and thus benefits the consumer.
In the current tech climate, that is exactly what’s happening: Facebook and Google provide their services for free, and Amazon provides almost unbeatably cheap prices for the products sold on its website.
As Lina Kahn, a legal fellow at Yale Law specializing in competition law, puts it in her 2017 paper, “the present approach fails even if one believes that antitrust should promote only consumer interests. Critically, consumer interests include not only cost but also product quality, variety, and innovation. Protecting these long-term interests requires a much thicker conception of “consumer welfare” than what guides the current approach.”
Lawrence White, professor of economics at New York University’s Leonard N. Stern School of Business, however, thinks the state AGs’ argument rings hollow.
“The first part of the proposition is correct — historical data does provide an advantage to larger companies, but I would think of this as an economy of scale,” he told InsideSources.
Basically, he said, having more data is just an advantage of being bigger and better at business, and regulators shouldn’t punish companies simply for their size.
“Is this worth doing anything in the antitrust arena? My instincts are not, partly because this is just another advantage of size, and if we start going after all the advantages of size, we’re never going to stop,” he said.
Instead of trying to break up the current tech companies, White said, the FTC should stop them from acquiring the competition. For example, allowing Facebook to acquire Instagram and WhatsApp was a “mistake.”
AGs and the FTC could bring antitrust cases against big tech companies, but first, they need to convince economists and the courts that the current antitrust framework needs to be updated to deal with 21st century tech issues.
“Antitrust has often been described as a consumer welfare statute,” the AGs wrote. “At a minimum, it focuses on the price effects that challenged conduct may have on the consumer. But it does — and should — encompass more. For example, antitrust law also reaches conduct with harmful effects on innovation and quality, as well as effects that are likely to cause consumer harm, albeit indirectly. It seeks to protect the competitive process, for the ultimate benefit of consumers.”