Amazon grew explosively and managed in but a few years to establish itself as a key player in the sales and distribution of books in many countries. In April , the contract between the two was set for renewal negotiations when Amazon came up with a new demand: Hachette was to reduce the price of most of its e-books to 9.
At a price of 9. The authors called for Amazon to be reported to the US Department of Justice in order to file an antitrust suit. Clearly Amazon could only get away with its pressure policy because the company has a quasi-monopoly in the field of online book sales. As things had evolved, Hachette was in no position to simply turn away and look for another distributor. The outcome of the conflict was a compromise: Hachette retained the right to price its own products, but a number of strong incentives to put promotional offers up on Amazon were imposed on them.
The case against Hachette is not the only one in which Amazon has used special methods towards its suppliers, and one might fear that Amazon, with its extraordinary economic muscle, is slowly gaining control over which books can be published and at what price—a situation with obvious problems for freedom of speech. Today, Amazon itself is already the largest publisher of books in the US, primarily of popular fiction, and is currently in the process of establishing itself in neighboring industries, as a producer of television shows, etc.
Is it a good thing that the same monopoly company not only sells and distributes content, but produces it as well? Publishers today already have no alternatives to Amazon—could the next step be authors who have no real alternative channels of publishing and distribution?
But how should companies like Google and Facebook be categorized? This battle for categorization is by no means a simple matter of semantics—it is crucial to how we can imagine a solution to the problems of tech giants discussed in this book. For every direct comparison, there was an equally elaborate one: a faceless Elder God.
A conquering alien fleet. There are real consequences to our inability to understand what Facebook is. He claimed that the average American communicates through eight different apps—but at the same time, he was unable to name a single competitor who offered services to the user similar to those of Facebook. A growing number of observers find that market dominance of the tech giants must be fought through antitrust legislation.
In a US context, antitrust legislation dates back to the decades around , when many trusts had sprung up within a number of industries.
Many companies from the same industry branches had joined forces, been bought up or entered into agreements, especially on price regulation. Theodore Roosevelt US President —09 stands out as the strongest anti-trust fighter.
Rockefeller, and Charles M. Schwab to a hearing. In , Roosevelt challenged railroad company Northern Securities, led by business tycoons such as J. Morgan and James J. The case went all the way to the Supreme Court, which in ordered Northern Securities split up into smaller companies. More than forty trusts were dissolved during the Roosevelt era. Taft, who broke more than ninety monopolies in his Presidential term in the years around In the presidential election of , trustbusting was the central theme, and Taft, who at the time had now developed a plan for state leadership of commerce and production, lost the election to Woodrow Wilson who ran on an anti-trust agenda informed by anti-trust lawyer Louis Brandeis as his advisor.
One of the most famous cases was the one filed against Standard Oil, the dominant oil company of the times, owned by four families and headed by John D. In , an antitrust suit was brought against Standard Oil, and it was sentenced to split up into 34 locally-rooted companies, among them later giants Mobil, Chevron and Exxon.
The US Supreme Court approved the split-up in Arnold, however, increasingly endorsed efficiency-based arguments, i.
With his focus on efficiency and price formation, Arnold weakened public interest in the political role of monopolies. The legacy of Brandeis, however, was definitively broken in the s and s, by economists of the Chicago school, led by Richard Posner and influential Yale economist Robert Bork. In his landmark book The Antitrust Paradox from , Bork argued that often consumers actually benefit from company mergers, as they can lead to better and cheaper goods, making antitrust legislation appear economically irrational in many cases.
This attitude gradually became dominant in the US Supreme Court and would turn out to play an important part in the deregulation of the economy from the s and on. And antitrust enforcers have the tools to stop tech companies from engaging in practices that choke off competition, but only if they use them. Companies today gather more data on everything from where we work to where we shop, to our political views, to what we eat for breakfast.
Data is power. However, there are also many Republicans who see the danger—not least because of signs of indirect support of the tech giants for the Democrats. More broadly, the government should begin looking into breaking Facebook into smaller entities to allow for greater competition and more consumer-friendly practices in the online advertising, publishing and communications spaces.
A strong political voice realizing the manifold problems with the tech giants is Senator Mark R. Here, Warner advocates a number of policies for regulating the excesses of tech giants. By this line of argument, a monopoly is the logical result of their victory in the competitive game, a competition which is then rendered unnecessary.
By contrast, Thiel speaks directly against competition between suppliers of the same type of product, as it will only eat away profits. After supporting antitrust legislation against the tech giants, he was fired in August , shortly after the EU fined Google. They carry out this support based on the assurance that it will make them influential regardless of the outcome of the next elections.
In this light, it is no encouragement to free speech that giant power may be used to get rid of critics representing nominally independent think tanks, which are co-sponsored by giants. One might ask: could a classic high-quality medium with a long tradition of serious investigative journalism, such as Washington Post , now really show critical interest in the monopoly behaviors of tech giants? Facebook, Amazon, and Google.
We all use them. They later restored the ads. But there are important parallels between the strong antitrust legislation in the US during large parts of the 20th century and the increasing problems with the tech giants. However, this ignores that in the tech giant setup, the consumer is not the user; rather, the paying advertisers are. The prices they negotiate when dealing with tech giants are hardly exposed to free competition, judging by the way things are now.
We have already described how the railway monopoly was trust-busted—a related case concerns freight transport by rail. It is obvious that a railway owner who also owns production companies could be inclined to give priority to transport of its own products in the freight wagons.
Antitrust legislation prohibited this by adopting a principle of neutrality, so that goods must be shipped in the order they arrive, treating all customers equally and charging the same prices for the same services. The first major monopoly case in the Internet age, against Microsoft in the s, in fact had exactly that characteristic. The argument was that the company combined its Windows operating system with its own browser, Internet Explorer, so customers were not free to use the browser software they wanted.
In , the Department of Justice won the case, obliging Microsoft to split up into two companies. On the other hand, the settlement obliged Microsoft to share with competitors key components of its software code, and set up a committee to make sure it happened.
In the US, this was the last major antitrust case, and during the presidency of George W. Bush, not a single trust was broken. Thus, the actual gilded age of tech giants occurs in a legal vacuum where the US government seems to have forgotten its century-long antitrust legacy. It made the accusation that, when users searched for a given product, Google prioritized its own price comparison feature for shopping over that of competing services.
On several occasions, Vestager has aired classic antitrust views—simply proposing a split-up of Google into several independent companies. Once again, it was Google that received the fine.
The reason for this one relates closely to the Microsoft case from around the turn of the millennium. These issues are also deeply tied to the entire debate on net neutrality. The term refers to the idea that the Internet should generally be structured so that all content is treated according to the same principles, and that no content is given priority over other content when network providers process that content. Net neutrality aims to ensure that different users, content, websites, platforms, applications, equipment or methods of communication are treated equally and are not, for example, subject to different payment or priorities during the process.
A number of European countries have legally-based net neutrality, but in the US the concept is disputed. In , the United States Federal Communications Commission FCC decided to allow different processing speeds, but at the same time it reclassified the web as telecommunications.
This reclassification put the Internet within the scope of the principle of neutrality for common carriers. Thus, in June the principle of net neutrality was lifted. Some observers argue that continued growth in bandwidth have, until now, made the subject less relevant in practice.
Legally and politically, the issue is highly controversial, and a more detailed analysis falls outside the scope of the present work—not least because net neutrality refers to internet service providers rather than our focus here: the tech giants.
As a precedent of net neutrality, the status of telephone companies calls to mind another classic antitrust case from the US, which is even more similar to the tech giants than Northern Securities railways were.
During the s, this company emerged from Bell Telephone Company , named after Alexander Graham Bell, inventor of the telephone. In such cases, a market can become unstable, and even in the ideal case of symmetrical competition between equal competitors of equal sizes, costs will occur that are absent in the case of monopolies e. Initially, the government followed the same procedure as against Standard Oil and advocated for a split-up, but in a compromise was reached.
Another antitrust case, in , led to a new compromise in It made the company agree to run the national telephone network only and thus not move into neighboring industries. It became one of the most important research labs of the 20th century, employing several Nobel Prize-winning researchers. Many important breakthroughs and inventions can be traced back to Bell Labs: radio astronomy, the transistor, some of the first American computers, the photocell, the communication satellite, the solar panel, the laser, several of the early computer languages, the quantum Hall effect, the digital mobile phone, etc.
Its impact goes all the way up to today; it is now owned by Nokia. The appearance of the first mobile phones in the s was what finally led to a split-up of the Bell System in This makes the marginal income increase with the number of customers. That is why earnings can explode once the company is established.
Hence, new customers can be attracted at a lower price than that of new companies, who first have to pay the establishment costs e. The result is often that first movers turn into natural monopolies. At the same time, these companies are able to provide their services at a lower price than would two competing companies if there were two competing phone companies, all consumers would need two telephones to get the same service that one could provide, which would be more expensive for the consumer.
This effect is evident, since the very service offered is a connection between customers, and the inclusion of an additional customer is only a marginal expense once the network is established. Many natural monopolies have the traits of infrastructure like water suppliers, power providers, sewerage, road networks, railways and telephone networks.
The US Government—since —developed a long antitrust tradition. It is possible to view Google and Facebook as natural monopolies, except they no longer just operate in American territory, but worldwide. Thus, any possible regulation efforts in the foreseeable future must take place on a nation-state basis.
Thus, certain options for regulating the monopolies of tech companies appear on the horizon. Barry Lynn categorizes tech giants as public utility infrastructure and points to two kinds of solutions: either splitting up monopolies or regulating them. The former solution is thus splitting up the companies.
Due to their character of natural monopoly, this could not follow the Standard Oil model of splitting into smaller companies of the same kind, only divided according to geographical location. It would make no sense to split up Google into local, competing search engines Giggle, Gaggle and Guggle. Pretty much the same goes for Facebook. Companies like Google and Facebook do not produce and edit the content posted by their users—but there is one service that they actually edit and control, namely ads.
Their origin, funding, content and targeting could be subject to greater control. Then, in the final days of its term, the supreme court issued the most important antitrust decision of the year. AmEx charges much higher fees to retailers than Discover, and as part of its contract with retailers, it prevents them from informing consumers of this fact and steering them to Discover instead. The US government and a number of states alleged this was illegal, anticompetitive behavior because AmEx can jack up the fees without facing competitive pressure.
Putting aside the merits of whether or not anti-steering provisions are anti-competitive and should be illegal, the real question is this: why should the supreme court make that decision? Policy choices like this should be the job of Congress and agencies, not the courts. In a new paper , I offer a blueprint for how to fix this state of affairs. At a minimum, we need to start by making antitrust like other areas of law.
Congress should pass a law that states clearly that the Federal Trade Commission has the power in the first instance to issue regulations under all of the antitrust laws.
But the courts would no longer be the primary makers of antitrust policy. In addition, reforms should go further to revitalize antitrust law and policy. Which agency reviews what mergers is largely a function of tradition, not statutory command. Merger approvals should all be concentrated in the FTC, ensuring consistency in their application.
Second, proposed mergers should be subject to a period of public comment, and the FTC should have to respond to public comments, as regulatory agencies do in every other sector when setting important policies. This would allow members of the public to raise concerns about mergers that economists and industry players might not be thinking about. As is conventional in other areas, courts would be able to strike down an agency approval for failure to consider these comments adequately.
There is no good reason for antitrust to diverge from every other area of law. Judges are not experts in the complexities of the economy nor in the cutting edge of business practices. They are insulated from public accountability.
And, under our constitutional system, they are not supposed to be policymakers. Economic concentration is one of the most pressing policy issues of our time. If we want to address concentration, we will need to take antitrust away from the courts.
This article is more than 3 years old. Ganesh Sitaraman.
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