I’m not sure if I fall into the minority on this viewpoint, but the more I talk to folks around the tech industry about the regulatory concerns the more I’m convinced government regulation, or a break up of big tech, is not the answer. In my mind, there are two things that are low hanging fruit to discuss regarding a modern antitrust environment.
Should the Definition and Circumstances Change?
I think it is clear from recent news, and communications from the DOJ and the FTC that they are attempting to modernize what is understood as antitrust or anticompetitive behavior and no longer is market share a defining element. For those interested I highly recommend reading this article in full which is the speech of Assistant Attorney General Makan Delrahim at the Antitrust New Frontiers Conference.
When listening questions fielded to CEO’s or executives lately on whether they feel they are a monopoly, they have often used their market share as a defense. Small market share is simply no longer a defense in this new era, and instead, the conversation will shift to two areas, competition, and consumer harm.
This is essentially how Makan Delrahim states the purpose of antitrust and the core question in this line of his speech “Therefore, the right question is whether a defined market is competitive. That is the province of the antitrust laws.” Essentially all discussion going forward should be centered around this topic if a market is competitive and if any incumbents are abusing their leverage to keep stifle competition or innovation in some cases.
On this topic of both a re-orienting our understanding of antitrust in the digital era, and competitive market dynamics, I found these following points from Makan’s speech quite interesting:
Finally, the Antitrust Division does not take a myopic view of competition. Many recent calls for antitrust reform, or more radical change, are premised on the incorrect notion that antitrust policy is only concerned with keeping prices low. It is well-settled, however, that competition has price and non-price dimensions.
Price effects alone do not provide a complete picture of market dynamics, especially in digital markets in which the profit-maximizing price is zero. As the journalist, Franklin Foer recently said, “Who can complain about the price that Google is charging you? Or who can complain about Amazon’s prices; they are simply lower than the competition’s.” Harm to innovation is also an important dimension of competition that can have far-reaching effects. Consider, for example, a product that never reaches the market or is withdrawn from the market due to an unlawful acquisition. The antitrust laws should protect the competition that would be lost in that scenario as well.
If you follow executive commentary, you note that price has also been something mentioned as monopoly defense. Apple was quick to point out that 80% of apps on the App Store are free, or Amazon points out that they are generally the most competitive on prices and are working tirelessly to keep prices low. It is abundantly clear price is also no longer a defense against monopoly. This speech makes it clear the issue at hand is not Apple’s pricing per se but that there are only two app stores. While competition is alive and well, arguably, on the App Store, App Store competition itself is not alive and well.
The digital era is one of the conglomerates. There is no way around that truth, and in this era, it seems, antitrust initiatives will focus more on how said tech conglomerates use their leverage to stifle competition. This opens the door, in my opinion, to a more crucial and better competitive analysis to emerge. In particular, for many companies themselves, who I have felt for some time, have worked closely with their legal teams to get as close to the edge of antitrust behavior without crossing it. Many companies may need to rethink some of their long-term strategies in light of a much larger magnifying glass being placed on them going forward.
Correlation, Causation, and Hypocrisy
A few other observations on this matter. In this speech, one of the more interesting viewpoints used was one looking historically at antitrust pursuits and remedies as a matter of causation. For example, Makan says about Microsoft “Although Microsoft was not broken up into smaller companies, the government’s successful monopolization case against Microsoft may very well have paved the way for companies like Google, Yahoo, and Apple to enter with their own desktop and mobile products.”
Note the language “may very well have.” Most of in the industry who have studied it for a long time can say with a high degree of certainty the antitrust suit against Microsoft was absolutely not the reason Google or Apple saw success in their mobile operating systems. The danger of the governments view here is to read too much into past successful antitrust legislation and view it as an anecdote for other successes today. That discounts a vast number of other dynamics that led to other companies successes.
As we build out thinking around how companies have been operating, and more specifically using their leverage, I do think areas of collusion and exclusivity are worthwhile areas for antitrust regulators to take a deeper look at some companies. That being said, I did find it ironic that when it came to collusion, the following example was used:
The Antitrust Division may look askance at coordinated conduct that creates or enhances market power. Consider, for example, the Antitrust Division’s investigation of Yahoo! and Google’s advertising agreement in 2008. The companies entered into an agreement that would have enabled Yahoo! to replace a significant portion of its own internet search advertisements with advertisements sold by Google. The Antitrust Division’s investigation determined that the agreement, if implemented, would have harmed the markets for internet search advertising and internet search syndication where the companies accounted for over 90 percent of each market, respectively. The agreement was abandoned after the Antitrust Division informed the companies that it intended to file a lawsuit to block the implementation of the agreement.
Here again, something that seemed well intentioned may be a factor in hurting Yahoo more than helping since Yahoo has since faded into irrelevance and leaving us in the west with really only one search engine. Yahoo working with Google may have helped them prolong their life long enough to come up with something new or innovate. We will never know. The point remains regulation runs the risk of having the exact opposite of its intentions, and sadly, most of these regulators are not informed enough to play out all scenarios as a part of their decision-making process.
Furthermore, it seems odd the level of hypocrisy antitrust regulators have shown up to this point. Think about things like cable monopolies who had zero innovation, high prices, very little competition in specific regions. Banking is another area, that while it seems like customers have a choice, there has been very little innovation, terrible customer experience, high fees, and a range of things that government regulations have enabled which makes the barrier of entry often too high for many startups.
As I said at the beginning, sometimes regulation is helpful, but more often than not, especially in the digital era, I think it can be argued it has done more harm than good.
That being said, I’m glad the government will start taking a look at certain issues, however, I worry they are ill-equipped to do so in many areas, and my fear is too much overstepping in a way that ends up hurting competition, consumers, and innovation in unintended ways.