This blog analyses existing discussions on the anti-trust regulation of the so-called ‘big-tech’ platforms in the United States of America.
Calls for tech regulation
Lately, the regulation of big tech companies[1] (such as Facebook, Apple, Alphabet Inc., Google, Amazon (GAFA)) has become a political talking point[2] in the US. Earlier this year, potential democratic presidential candidates Elizabeth Warren[3] and Bernie Sanders[4] promised to regulate big tech. It was a key talking point in their (since shelved) election campaigns. Around the same time, the Federal Trade Commission (FTC)[5] asked GAFA for details of their acquisitions between 2010 and 2019. State attorneys[6], led by Texas Attorney General Ken Paxton, are also conducting a parallel investigation of several big tech companies. In 2019, Rep. David Cicilline[7]. and other members of the House Antitrust Subcommittee began investigating GAFA, through public hearings and written queries.[8] This resulted in the now-famous anti-trust hearing and a report arguing for the ‘break-up’ of big tech companies due to their anti-competitive conduct[9].
Calls for breaking[10] up[11] or more stringent regulation of big
tech have been popular in academic circles in what has come to be known as
‘hipster antitrust’ or the ‘Neo-Brandiesian School’.[12]
Led by scholars such Tim Wu[13] and Lina Khan[14], a
central thesis of the Neo-Brandiesian School[15] is that competition policy should
protect competitive process and not just eye consumer welfare. It has been
claimed that digital platforms are steeped in anti-competitive conduct as they
buy up newcomers (thus kill competition[16]),
engage in data driven price discrimination, give platform preference to their
own goods and services, collect data in unfair ways[17],
and engage in zero pricing model that snuffs out new entrants.
To be sure, this is not the first time that the US is witnessing a momentum to disband big companies. Standard Oil (1911)[18] and AT&T (1984)[19] were famously broken on account of anti-competitive conduct. Notably, there has been no major anti monopolization case brought by the Department of Justice (DoJ) since Microsoft (2001).
Digital platforms – what are they?
What makes digital platforms (DPs) so special that they merit such political clamour? Digital platforms, such as Facebook, Uber, Zomato and Flipkart are examples of multisided platforms, as are newspapers, credit card companies and fairs. There is considerable debate on the definition of a multisided market. [20] Multisided platforms connect two or more group of users, are characterised by indirect network effects[21] (with every additional user, the platform becomes more valuable to the other user group) and cross subsidization (if one set of users has low or zero cost to access a service, another set of users benefits from this and pays for it indirectly).
Digital platforms[22] have a multi-sided business model. One reason why they arguably stand at a different footing than other multisided platforms is data – the quantum, quality and the speed at which it is generated.[23] Many other criticisms that they are subject to, such as zero price offerings,[24]market barriers, and challenges in market power assessment[25] are the result of platforms being multi-sided, and are endemic to many multisided markets.
What is the consumer welfare standard?
The ‘consumer welfare standard’ (CWS) has come to mean different things to different people since it was popularised by Bork.[26] Some interpret it to mean the welfare of the end consumer alone[27] (often understood as low prices and high output), while others interpret it to mean a ‘total’ welfare standard that encompasses the welfare of the producers as well.[28] Here, we use CWS to mean the latter. There is a raging debate if CWS is an adequate measure[29] to guide competition policy.[30] The answer is a resounding yes.[31] CWS is wide enough to address concerns of different economic stakeholders. While deciding antitrust matters, courts have recognised the rights of the sellers[32] against coordinating buyers, rights of employees[33] affected by anti-poaching agreements, and considered non price effects of a monopolists’ conduct.[34] Thus, CWS is not only broad enough[35] to address concerns of diverse stakeholders involved[36], but its focus on economic factors (devoid of political values)[37] makes it a steady and predictable metric[38] that businesses can reliably use as touchstone for assessment of their conduct.
The way forward
The regulatory (and even political) scrutiny of digital platforms is going to run its course. New insights, measures, and methods on platform regulation will likely come to light by the end of this exercise. In keeping with current debates, here are broad policy recommendations on platform regulation.
First, a distinction ought to be made[39] between competition (excessive market power, concentrated markets, data as a source of market power) and non-competition concerns (political influence digital platforms,, data privacy concerns, taxation ). While non-competition concerns are certainly valid, antitrust policy is not an appropriate tool to address them; they are probably better addressed through tax policy, data protection laws and consumer protection frameworks, distributive mechanisms, electoral reforms, etc. The regulation of data sits at the intersection of data protection laws and antitrust policy. To that extent, data regulations and / or antitrust policy should encourage multihoming and data portability across platforms to lower switching costs and enhance competition.
Second, while there may have been gaps[40] in antitrust enforcement for digital platforms, , blaming CWS for it amounts to academic scapegoating.[41] Antitrust policy would be better served by empowering enforcement agencies with resources and expertise, using retrospective merger studies[42] to understand the impact of agency decisions on the industry, developing methods that evaluate the impact of data in competition, using analytical tools suited for digital platforms (such as the small but significant non-transitory decrease in quality’ (SSNDQ)[43]test instead of the Small but Significant Non-transitory Increase in Price (SSNIP) test, using ‘market supply’ as proxy for ‘market share’, recognising data as a source of market power) and understanding the dynamics and efficiencies of digital platforms.
Third, it may be useful to evaluate each case on its own merit by evolving a theory of harm[44] on a case to case basis following the rule of reason approach – and this needs to be done for all markets that form a part of a platform.
Finally, in assessing the calls for stringent regulation, its behoves one to be guided by facts rather than sentiment. Attacks on bigness absent a cogent of theory of harm, proper empirical analysis, assessment of benefits to different consumer groups and pro-competitive effects,[45] neglecting consequences of false positives may rob antitrust policy of certainty and predictability – and possibly reduce it to being a political widget.
Knee jerk calls for breaking up big tech to salve popular discontentment with political and economic structures could be ineffective at best, and counterproductive at worst. A healthy economic system is characterised by clear rules and predictable enforcement – moving regulatory goalposts to meet political ends is singularly dangerous. Some of these recommendations may help in providing certainty of regulation to businesses, and promote overall economic welfare. Any antitrust regulation of digital platforms should pass the muster of clarity, predictability, fairness and being contextually sound.
This piece has been authored by Gargi Yadav, external consultant, with inputs from Nehaa Chaudhari, Partner, Ikigai Law.
For more on the topic, please get in touch at contact@ikigailaw.com
[1]See Prioritizing Digital Platforms for Antitrust Review, April 2, 2020, Center for Democracy and Technology https://cdt.org/wp-content/uploads/2020/04/2020-04-02-Prioritizing-Digital-Platforms-for-Antitrust-Review.pdf
[2]https://www.theverge.com/2020/3/3/21152774/big-tech-regulation-antitrust-ftc-facebook-google-amazon-apple-youtube
[3] https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c
[4] https://www.washingtonpost.com/news/powerpost/paloma/the-technology-202/2020/02/12/the-technology-202-bernie-sanders-is-no-friend-of-big-tech-and-he-keeps-winning/5e42fcd9602ff14f8aac33dc/
[5] https://www.pbs.org/newshour/economy/u-s-regulators-expand-antitrust-probe-into-5-giant-tech-companies
[6] https://www.reuters.com/article/us-tech-antitrust-probe-factbox/factbox-big-tech-faces-growing-number-of-us-probes-idUSKBN1Y92G8
[7] https://www.cnbc.com/2020/01/31/house-antitrust-subcommittee-chair-david-cicilline-interview.html
[8] https://www.marketwatch.com/story/big-tech-keeps-getting-bigger-as-antitrust-inquiries-continue-to-multiply-2020-02-11
[9] https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf
[10] https://www.wired.com/story/tim-wu-explains-why-facebook-broken-up/
[11] https://www.vox.com/recode/2019/5/3/18520703/big-tech-break-up-explained
[12] https://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law
[13] https://www.nytimes.com/interactive/2019/06/07/opinion/google-facebook-mergers-acquisitions-antitrust.html
[14] “..[T]he undue focus on consumer welfare is misguided. It betrays legislative history, which reveals that Congress passed antitrust laws to promote a host of political economic ends—including our interests as workers, producers, entrepreneurs, and citizens. . . . Antitrust law and competition policy should promote not welfare but competitive markets. By refocusing attention back on process and structure, this approach would be faithful to the legislative history of major antitrust laws. It would also promote actual competition—unlike the present framework, which is overseeing concentrations of power that risk precluding real competition.” See Lina M. Khan, Amazon’s Antitrust Paradox, 126 YALE L. J. 710 (2017)
[15] Werden, Gregory J., Back to School: What the Chicago School and New Brandeis School Get Right (September 4, 2018). Available at SSRN: https://ssrn.com/abstract=3247116 or http://dx.doi.org/10.2139/ssrn.3247116
[16] See Holmström, Mats and Padilla, Jorge and Stitzing, Robin and Sääskilahti, Pekka, Killer Acquisitions? The Debate on Merger Control for Digital Markets (2018). 2018 Yearbook of the Finnish Competition Law Association, Available at SSRN: https://ssrn.com/abstract=3465454 or http://dx.doi.org/10.2139/ssrn.3465454
[17] https://www.washingtonexaminer.com/policy/economy/big-tech-investigation-focused-on-abuse-of-data-doj-antitrust-chief-says
[18] The Standard Oil Company of New Jersey, et al. v. The United States, 221 U.S. 1 (1911)
[19] https://www.nytimes.com/1984/01/01/us/bell-system-breakup-opens-era-of-great-expectations-and-great-concern.html
[20] See Multi-sided platforms, Institute of Applied Informatics at University of Leipzig 2019, Nizar Abdelkafi, et al, 27 November 2019 https://link.springer.com/content/pdf/10.1007/s12525-019-00385-4.pdf ; “..market in which a firm acts as a platform and sells two different products or services to two groups of consumers, while recognising that the demand from one group of customers depends on the demand from the other group and, possibly, vice versa.” See Some Empirical Aspects of Multi-sided Platform Industries, David S Evans, “The Antitrust Economics of Two-Sided Markets” available at http://aei.brookings.org/admin/pdffiles/phpMt.pdf; “Two-sided (or more generally multi-sided1) markets are roughly defined as markets in which one or several platforms enable interactions between end-users, and try to get the two (or multiple) sides “on board” by appropriately charging each side.” See Two-Sided Markets: An Overview, Jean-Charles Rochet and Jean Tirole, March 12, 2004 availiable at https://web.mit.edu/14.271/www/rochet_tirole.pdf; Multi-sided Platforms, Andrei Hagiu and Julian Wright, Working Paper, 15-037, March 16, 2015, https://www.hbs.edu/faculty/Publication%20Files/15-037_cb5afe51-6150-4be9-ace2-39c6a8ace6d4.pdf; “in multi-sided markets, many of the rules of thumb applied in traditional (single-sided) economic analysis are not relevant” See. https://www.gsma.com/publicpolicy/wp-content/uploads/2016/10/GSMA_Resetting-Competition_Report_Oct-2016_60pp_WEBv2.pdf; Multi-sided Platforms and Markets: A Literature Review, Juan Manuel Sánchez-Cartas, Universidad Politécnica de Madrid https://www.researchgate.net/profile/Juan_Manuel_Sanchez-Cartas/publication/325225786_Multisided_Platforms_and_Markets_A_Literature_Review/links/5c598d03299bf1d14cadb3b9/Multisided-Platforms-and-Markets-A-Literature-Review.pdf
[21] “Online markets may have different network effects–direct and indirect network effects. Each type of network effect has its own attributes. Direct network effects may matter for purposes of scaling up, such as Facebook or Skype where more users create bigger scale. However, indirect network effects work differently. Indirect network effects take place in situations where additional users improve the use of a product or service better, though not due to direct interaction across users. Rather, additional users allow a platform to determine what its users want via trial and error in search results. This in turn improves the quality of search results. Understanding the difference between direct and indirect effects helps antitrust enforcers to better understand a multi-sided market.” D. Daniel Sokol and Jingyuan (Mary) Ma, Understanding Online Markets and Antitrust Analysis, 15 Nw. J. Tech. & Intell. Prop. 43 (2017). https://scholarlycommons.law.northwestern.edu/njtip/vol15/iss1/2
[22] Nick Srnicek http://speri.dept.shef.ac.uk/wp-content/uploads/2018/11/SPERI-IPPR-Digital-platforms-and-competition-policy-literature-review.pdf
[23] Using the 4 Vs of data framework– volume, velocity, variety, and value. See Stucke, M. and A. Grunes (2016), Big Data and Competition Policy, Oxford University Press
[24]“… sustained zeroprice markets are typically one side of a multi-sided market or platform in which the seller generates revenue from other sides..” Melamed, A.D., Petit, N. The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets. Rev Ind Organ 54, 741–774 (2019). https://doi.org/10.1007/s11151-019-09688-4
[25] “..Understanding the multi-sided nature of internet markets is very important to market definition analysis. If an antitrust authority (or court) misidentifies the multi-sided nature of the market, this creates problems in analyzing the competitive effects in such a multi-sided market. Consequently, market definition can be conducted incorrectly as it may focus only on one side of the market or may implicate a free product or service. In such markets where the product or service is free, it is not possible to calculate a traditional market share as in a one-sided market because in a multi-sided market, one side of the market may subsidize the other side of the market ..” D. Daniel Sokol and Jingyuan (Mary) Ma, Understanding Online Markets and Antitrust Analysis, 15 Nw. J. Tech. & Intell. Prop. 43 (2017). https://scholarlycommons.law.northwestern.edu/njtip/vol15/iss1/2
[26] “The consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action. The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978. The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers”. Cited from https://www.lexology.com/library/detail.aspx?g=c438effb-fbfc-4ec1-b3ba-59d4bb3bc2e3
[27] Lina M. Khan, Amazon’s Antitrust Paradox, 126 YALE L. J. 710 (2017)
[28] “…refers to the aggregate value that an economy produces, without regard for ways that gains or losses are distributed…” 1 PHILLIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 114a (4th ed. 2014). See Roger D. Blair & D. Daniel Sokol, Welfare Standards in U.S. and E.U. Antitrust Enforcement, 81 FORDHAM L. REV. 2497 (2013); The Rule of Reason and the Goals of Antitrust: An Economic Approach, 78 ANTITRUST L.J. 471 (2012).
[29] Marshall Steinbaum of the Roosevelt Institute is direct in his critique: “The consumer welfare standard is an outdated holdover from a discredited economic theory.” He and others in this camp would replace the consumer welfare standard with a “competitive market standard.” Similarly, Tim Wu of the Columbia Law School would replace the standard with a tighter focus on the protection of competition. Lina Kahn agrees, stating, “Rather than focus on consumer welfare, or any metric, antitrust needs to focus on competition.” Cited from: https://docs.house.gov/meetings/JU/JU05/20181212/108774/HHRG-115-JU05-20181212-SD004.pdf
“ My argument is that gauging real competition in the twenty-first century marketplace—especially in the case of online platforms—requires analyzing the underlying structure and dynamics of markets. Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive process itself. Animating this framework is the idea that a company’s power and the potential anticompetitive nature of that power cannot be fully understood without looking to the structure of a business and the structural role it plays in markets” Lina M. Khan, Amazon’s Antitrust Paradox, 126 YALE L. J. 710 (2017)
[30] https://www.pbwt.com/antitrust-update-blog/congress-hears-challenges-to-the-consumer-welfare-standard
[31] Ensuring The Legacy of the Consumer Welfare Standard MAKAN DELRAHIM Assistant Attorney General Antitrust Division, U.S. Department of Justice https://www.justice.gov/opa/speech/file/1222866/download
[32] Mandeville Island Farms v. American Crystal Sugar Inc., 334 U.S. 219 (1948).
[33] United States v. Adobe Sys., Inc., No. 10-cv-01629, 2010 WL 11417874 (D.D.C. Sept. 24, 2010)
[34] United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
[35] “In particular, enforcers must answer critics of the consumer welfare standard who wrongly assert that it is concerned only with price effects. That has never been the case. For decades, courts interpreting the Sherman and Clayton Acts have recognized harms to competition in the form of lower output, decreased innovation, and reductions in quality and consumer choice.” https://www.justice.gov/opa/speech/file/1222866/download
[36] Strengthening Antitrust Enforcement within the Consumer Welfare Rubric, Marina Lao, CPI Antitrust Chronicle, November 2019.
[37] “The CW standard does entail value choices: it focuses exclusively on economic welfare and ignores non-economic objectives. As we explain below, however, those choices have little to do with whether antitrust law should be aggressive or passive, conservative or liberal. They are not just an arbitrary selection of outcomes desired by those that shape the law. Instead, they are a means of promoting legitimacy and accountability.”
– Melamed, A.D., Petit, N. The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets. Rev Ind Organ 54, 741–774 (2019). https://doi.org/10.1007/s11151-019-09688-4
[38] “The
advantage of the consumer welfare principle is that economics gives us a set of
tools for assessing the conditions that are conducive to high output and lower
prices, and thus for examining the practices claimed to challenge them, without
excessive amounts of balancing. That is not to say that employing these tools
is easy, but over the years we have been able to improve their usefulness.”
Hovenkamp, Herbert J., “Is Antitrust’s Consumer Welfare Principle
Imperiled?” (2019). Faculty Scholarship at Penn Law. 1985.
https://scholarship.law.upenn.edu/faculty_scholarship/1985
[39] “We have to disaggregate some of the informational and political concerns from the antitrust concerns,” Herbert Hovenkamp, https://knowledge.wharton.upenn.edu/article/why-breaking-up-big-tech-could-do-more-harm-than-good/
[40] See the criticism of Ohio, et al. v. American Express Company, 585 U.S. (2018) by – Melamed, A.D., Petit, N. The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets. Rev Ind Organ 54, 741–774 (2019). https://doi.org/10.1007/s11151-019-09688-4
“Several
practices, such as tacit collusion, predatory pricing, law’s recoupment
requirement, and the status of indirect purchaser plaintiffs, need to be
re-examined. Further, anticompetitive practices affecting labor markets need to
be taken more seriously…. Antitrust policy should also be more concerned than
it currently is with anticompetitive mergers. One area in particular is large
tech firm acquisitions of smaller highly innovative rivals. ” See also Hovenkamp, Herbert J., “Is Antitrust’s Consumer Welfare Principle
Imperiled?” (2019). Faculty Scholarship at Penn Law. 1985.
https://scholarship.law.upenn.edu/faculty_scholarship/1985
[41] “the criticism that current antitrust enforcement has not prevented innovation harm caused by shootout mergers has nothing to do with the CW standard” Melamed, A.D., Petit, N. The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets. Rev Ind Organ 54, 741–774 (2019). https://doi.org/10.1007/s11151-019-09688-4
[42] “In order to inform discussions of merger policy, we must also collect a second type of data—ex-ante information concerning the enforcement agency’s predictions of the merger. “Only . . . by combining a record of what tools were used and what conclusions were drawn from each tool with a study of observed outcomes from mergers . . . can systematic evidence be collected on the efficacy of various methods used in merger review.” By structuring merger retrospectives to square the estimated merger effects of econometric studies with the details of the agency’s assessment process, we can begin to identify whether systematic decision-making is consistently biased in a way that harms consumers.. must consistently record their assessment techniques and predictions. Perhaps more importantly, to use merger retrospectives to test the effectiveness of merger policy, the agencies need to share information… rigorous evaluation of policy is a heavier lift than ex-post evaluation of specific outcomes, but it is worth the investment. The consequences of merger policy are too important to be set by popular opinion..” Market Concentration – Note by Joshua D. Wright, DAF/COMP/WD(2018)69, available at https://one.oecd.org/document/DAF/COMP/WD(2018)69/en/pdf
[43] The SSNDQ test is a tool used by competition authorities to define a ‘relevant market’. This test considers whether a decrease in quality would be profitable, as opposed to the SSIP test, which only considers an increase in price while defining the relevant market. See Annex B at ,https://www.gsma.com/publicpolicy/wp-content/uploads/2016/10/GSMA_Resetting-Competition_Report_Oct-2016_60pp_WEBv2.pdf
[44] See Thurman Arnold Project of the Yale University – that discusses theory of harm for GAFA for each type of impugned conduct.
[45] “Often, multi-sided markets produce significant benefits to consumer welfare in what are dynamic and fast moving markets. Mistaken antitrust intervention in such markets threatens innovation.” D. Daniel Sokol and Jingyuan (Mary) Ma, Understanding Online Markets and Antitrust Analysis, 15 Nw. J. Tech. & Intell. Prop. 43 (2017). https://scholarlycommons.law.northwestern.edu/njtip/vol15/iss1/2
