{"id":430,"date":"2020-08-05T10:14:19","date_gmt":"2020-08-05T14:14:19","guid":{"rendered":"https:\/\/blog.iese.edu\/the-media-industry\/?p=430"},"modified":"2020-08-06T13:58:02","modified_gmt":"2020-08-06T17:58:02","slug":"antitrust-measures-for-the-21st-century","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/the-media-industry\/2020\/08\/05\/antitrust-measures-for-the-21st-century\/","title":{"rendered":"Antitrust measures for the 21st century"},"content":{"rendered":"

On Wednesday July 29, the CEOs of Apple, Amazon, Facebook, and Google were summoned to a hearing with the House antitrust committee. It turned out to be one of the most critical antitrust events since the 90s Microsoft case. One thing is clear\u2014U.S. politics are finally waking up on the antitrust front after three decades of silence. The committee is expected to draft a report on their findings regarding antitrust and Big Tech. At the minimum, Big Tech’s acquisitions will slow down. At the maximum, some of the Big Four will be broken up into smaller companies (like Standard Oil was). But overall, it’s safe to say antitrust sentiment is back in style.<\/span><\/p>\n

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Photo by Darren Halstead on Unsplash.<\/figcaption><\/figure>\n

In the U.S., antitrust policies were first designed in the late 1800s. A few businessmen like J.P Morgan, Rockefeller, and Carnegie owned very large companies in the sectors of steel (U.S. Steel), oil (Standard Oil), and telecommunications (AT&T). As the companies grew bigger, they also took advantage of their position by deterring competitors and extolling lower prices for the resources they needed, becoming de-facto monopolies. On many occasions, they also used bribes, explains Tim Wu in his book “The Curse of Bigness: Antitrust in the New Gilded Age.” As a response, the U.S. approved the Sherman Antitrust Act in 1890, which aimed to limit the power of trusts\u2014companies in the same market that end up merging.<\/span><\/p>\n

However, the measure was not really implemented until President Theodore Roosevelt took office in 1901. Roosevelt disliked monopolies, not only for their economic power\u2014they could control prices and control competitors\u2014but more importantly, because they posed a risk to democracy. They had too much political influence. Antitrust laws were no longer a market problem; they were a larger policy issue. Monopolies could favor policies that were good for their own business but bad for citizens\u2014especially given their lobbying capacities. With Roosevelt in government, several trusts were broken up, including Standard Oil in 1909. Antitrust sentiment grew popular in the U.S. and was implemented for several decades after Roosevelt was gone.\u00a0<\/span><\/p>\n

In the 50s, the sentiment changed, writes Wu. At the University of Chicago’s Law School, a group of lawyers and thinkers reinterpreted antitrust laws. Their understanding was that antitrust laws could only be applied if the monopoly hurt prices; that is if it impacted the consumer’s well-being, not competition per se. That idea gained popularity, and soon antitrust cases grew scarcer. The last big antitrust case was against AT&T in the 80s. When the Department of Justice turned to Microsoft in the 1990s, the will to implement strict antitrust measures had waned. The Department ended up settling with the tech company.\u00a0<\/span><\/p>\n

From the 90s till now, antitrust has remained at the fringes of society while Chicago’s ideas still dominate public opinion. For that reason, Google has been able to control over 90% of the internet search market; Facebook has acquired its competitors\u2014like Instagram and WhatsApp;\u2014Amazon owns the front-end and distribution chain, and Apple controls the App store for its devices. In the past three decades, we have let companies grow bigger with less oversight than before. But now, with the rise of Big Tech, antitrust law must be reevaluated. Chicago’s ideas of solely focusing on price and consumers’ well-being do not make much sense in tech and social media. Social media apps are free of charge. In a way, you pay for them with your time watching the ads that pop up. Amazon, on the other hand, is cheaper than its competitors. But they all have grown as trusts, many through acquisitions. Young startups can aspire to be bought out or copied, but they can rarely dream of throwing out the incumbents. Besides, Big Tech monopolies can also potentially harm democracy in a broader sense, as they have huge political power.\u00a0<\/span><\/p>\n

 <\/p>\n

Still, the business landscape is divided with some calling for more antitrust measures, and others advocating for uncontrolled “growth.” On the latter side is PayPal founder Peter Thiel, who argues that monopolies are good in his book “Zero to one.” In his view, trusts give companies a chance to innovate. Instead of spending money fighting off competitors for marginal differences, they get to invest in research and new products. This opinion is quite accepted in Silicon Valley, where Big Tech monopolies are viewed as benevolent, generating a good kind of influence. On the other side of the debate are thinkers like Tim Wu, professor at Columbia University’s Law School. He has consistently argued that Big Tech monopolies can deteriorate the democratic fabric and the business one. Competition, he says, leads to innovation.\u00a0<\/span><\/p>\n

What’s clear is that the Big Tech monopolies must be reeled in (read<\/span> 2019, the year when Big Tech may shrink<\/span><\/a>). Problems abound: multiple companies have denounced the Big Four for anti-competition practices; misinformation is rampant on Facebook and WhatsApp, Google and Facebook get most of the ad revenue and control news distribution networks; and conservatives claim they are unfairly banned from Twitter and YouTube (read<\/span> The limits of freedom of speech on social media<\/span><\/a> and<\/span> Facebook’s ban on extremist figures is not enough to stop fake news; we need more<\/span><\/a>).<\/span><\/p>\n

That’s where last week’s hearing comes in. On Wednesday, the committee asked Facebook’s Mark Zuckerberg, Apple’s Tim Cook, and Google’s Sundar Pichai tough questions on their monopolistic practices. The committee has been assembling evidentiary documents on those practices for over a year and intends to publish a report so Congress can evaluate further antitrust measures.\u00a0<\/span><\/p>\n

During the hearing, Facebook was mainly asked about its past acquisitions\u2014specifically that of Instagram. For Zuckerberg, the acquisition had nothing to do with killing a competitor, as Instagram would have never become popular if not for Facebook. “It was not a guarantee that Instagram was going to succeed. The acquisition has done wildly well not just because of the founders’ talent, but because we invested heavily in building up the infrastructure and promoting it and working on security and working on a lot of things around this,” said<\/span> Facebook’s CEO<\/span><\/a>.\u00a0<\/span><\/p>\n

For Google, the questions focused on how their search engine prioritizes Google-owned sites over those owned by smaller companies. Amazon was asked about their relationship with third-party sellers and how they view specific markets as winner-takes-all industries. The committee did not grill Apple as much.<\/span><\/p>\n

Although unflattering, the hearing has not harmed Big Tech companies yet. But it is the first step towards a change of sentiment in regard to antitrust. The Big Four have been left to regulate themselves for far too long, and, in the meantime, they have grown bigger and more powerful. Facebook acquired or copied all of its competitors in less than ten years, and Congress did nothing. Amazon controls a distribution network where it sells its own products alongside those of third-party companies, which comes with its conflict of interest. And Google is present in multiple industries\u2014with projects such as Google Maps and its reviews which used to compete with Yelp\u2014giving its shareholders power over the market. Even the stock market hugely depends on how these four companies’ stock fares. These four companies represent 34.5% of the NASDAQ 100 (as of August 4, 2020).<\/span><\/p>\n

 <\/p>\n

We need to rethink antitrust measures and how they should be remodeled for the 21st century. Although the problems are not the same as in the late 1800s, they are as worrying, and they need to be addressed. Hopefully, last week’s hearing leads to a change in sentiment towards monopolies, unlimited growth, and the implementation of antitrust policy in the U.S.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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