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Resolved: The United States federal government should enforce antitrust regulations on technology giants (Intro)

Resolved: The United States federal government should enforce antitrust regulations on technology giants (Intro)

Bibliography Pro Essay   Con Essay

Intro VIDEO

Introduction

The NSDA NCFL PF resolution asks the question of whether or not the United States federal government should enforce “antitrust regulations” on “technology” giants.

In this introductory essay, I will review key terms so that you can gain an understanding of the resolution, introduce the basic ideas behind the Pro and Con arguments, including framework, and then make some larger strategic suggestions.

Additional essays will cover the details of the Pro and Con arguments.

The Meaning of the Resolution

The term “United States federal government” is clear. At least in debate, everyone understands it to be the central government that is in Washington, DC. Some definitions say it includes the state governments, but those definitions also assume the state governments are part of the national government.

I originally though the term “technology giants” was a poor wording choice, as it seems like a vague concept, but it does refer to specific companies –

Dave Zielinski, January 29, 2019, //www.shrm.org/resourcesandtools/hr-topics/technology/pages/facebook-google-microsoft-moving-into-hr-technology.aspx SHRM

The Technology Giants Are Moving into HR. Facebook, Google and Microsoft are making deeper forays into the HR technology market, leading to faster consumerization of HR technology platforms, increasing competition for existing vendors and giving HR leaders more choices in tech solutions.

It also includes Amazon

Ayoub Aoud, November 3, 2018, //finance.yahoo.com/news/technology-giants-using-reach-digital-160000948.html

How technology giants are using their reach and digital prowess to take on traditional banks (GOOG, GOOGL, AAPL, FB, MSFT, AMZN)

There are some additional, related definitions in the release, and you may find definitions that list more than these companies, but these large technology companies are generally what the resolution is talking about.

“Antitrust regulations” are generally considered to be laws that are designed to prevent particular companies from monopolizing (controlling all of) the business in a particular sector of the economy.

Federal Trade Commission, no date, //www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws

Free and open markets are the foundation of a vibrant economy. Aggressive competition among sellers in an open marketplace gives consumers — both individuals and businesses — the benefits of lower prices, higher quality products and services, more choices, and greater innovation. The FTC’s competition mission is to enforce the rules of the competitive marketplace — the antitrust laws. These laws promote vigorous competition and protect consumers from anticompetitive mergers and business practices

So, for example, we do not want their to be only one phone company, Why? Because if there is only one phone company that company can charge any prices they want and they don’t have to innovate and serve customers well to maintain business.

Similarly, we also don’t want companies to do business in other industries, as that would allow a single company to take over all industries, enabling them to raise prices and smash product innovation in those industries as well.

Regulations are simply additional laws that are designed to enforce and implement laws. Congress (or any legislature) passes laws and the Executive branch designs regulations to implement these laws.

The resolution calls for Congress to enforce these regulations.

Collins English Dictionary, //www.collinsdictionary.com/us/dictionary/english/enforce

transitive verb

If people in authority enforce a law or a rule, they make sure that it is obeyed, usually by punishing people who do not obey it. Boulder was one of the first cities in the nation to enforce a ban on smoking.

The resolution requires the Pro to enforce regulations, but it is not clear if it limits the Pro to enforcing existing regulations from current antitrust law.

There are two laws on the books that could potentially be enforced against Big Tech.

Federal Trade Commission, no date, 2017, //www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws The antitrust laws

The Antitrust Laws

Congress passed the first antitrust law, the Sherman Act, in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act. With some revisions, these are the three core federal antitrust laws still in effect today.The antitrust laws proscribe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the facts of each case. Courts have applied the antitrust laws to changing markets, from a time of horse and buggies to the present digital age. Yet for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up. Here is an overview of the three core federal antitrust laws. The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.” Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws. On the other hand, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are “per se” violations of the Sherman Act; in other words, no defense or justification is allowed. The penalties for violating the Sherman Act can be severe. Although most enforcement actions are civil, the Sherman Act is also a criminal law, and individuals and businesses that violate it may be prosecuted by the Department of Justice. Criminal prosecutions are typically limited to intentional and clear violations such as when competitors fix prices or rig bids. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million. The Federal Trade Commission Act bans “unfair methods of competition” and “unfair or deceptive acts or practices.” The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act. Thus, although the FTC does not technically enforce the Sherman Act, it can bring cases under the FTC Act against the same kinds of activities that violate the Sherman Act. The FTC Act also reaches other practices that harm competition, but that may not fit neatly into categories of conduct formally prohibited by the Sherman Act. Only the FTC brings cases under the FTC Act. The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.

These laws were designed to combat horrible example of monopolization

Peter Karmin, Stuart Loren, Managing Partner & Director, Karmin Capital, March 2018, Antitrust in the Internet Age, //static1.squarespace.com/static/59c018a20abd045c70aaa964/t/5ab13e5b88251bfd94b30e65/1521565277206/Antitrust+in+the+Internet+Age.pdf

The most glaring examples of U.S. antitrust violations are when two primary competitors in an industry merge, competing businesses within one industry collude to raise prices or when one company works to centralize an entire industry supply chain. John Rockefeller’s Standard Oil is the classic example of antitrust violations (although scholars have recently cast skepticism on the degree to which the company abused its market power). The traditional account of the company’s abusive actions is as follows: in the late 19th and early 20th Centuries, Standard Oil expanded by purchasing competitors and using its clout to pressure service providers (like railroads) to provide the company discounts unavailable to smaller competitors. Where the company faced competition, it used its size to price competitors out of the market; and in markets without competitors, the company raised final prices to end consumers, taking advantage of the lack of competition. Through a series of partnerships and trusts, Standard Oil gained control of nearly the entire U.S. oil supply chain – including production, refining, distribution and marketing. By 1904, the company controlled 91% of U.S. oil production and 85% of final sales. On May 15, 1911, the U.S. Supreme Court affirmed a lower court decision that found the Standard Oil group to be an “unreasonable” monopoly under the Sherman Act. The Court ordered the company to break up into 34 independent firms with different management and directors. For those interested in the history of the U.S. oil industry, the largest two of these companies were Standard Oil of New Jersey (which later became Exxon) and Standard Oil of New York (which later became Mobil). Ironically, after the breakup of the company (of which John Rockefeller owned approximately 25%), the value of the new companies doubled – propelling Mr. Rockefeller’s wealth to the largest in the world.11

These are relevant to Big Tech because many of these companies are starting to occupy a sizable portion of their commerce space and are also starting to purchase and run other companies. Amazon, for example, purchased Whole Foods and now runs a grocery business. Given its capital, Amazon can sell groceries at very low prices, drive other companies out of business, and then raise the price of food substantially. This is exactly what antitrust enforcement was designed to prevent.

The resolution clearly permits the Pro to enforce existing antitrust law, but it is unclear if the Pro can argue for new regulations. This is relevant because Senator Warren has proposed new regulations as part of her plan to tackle monopolization i Big Tech. Her idea is that in addition to enforcing current anti trust regulations that there should be laws/regulations that require any company that owns a platform and has revenue of more than $25 billion to not be allowed to sell its own products on that platform.

David Dayen, April 1, 2019, HOW TO THINK ABOUT BREAKING UP BIG TECH, The Intercept, //theintercept.com/2019/04/01/elizabeth-warren-tech-regulation-2020/

The approach being championed by Warren is two-pronged: First, she proposes utilizing federal regulatory agencies, including the Federal Trade Commission and the Department of Justice, to use existing antitrust tools to unwind anti-competitive mergers that have already taken place. Under the plan, Amazon would be disentangled from Whole Foods and Zappos, Facebook split apart from Instagram and WhatsApp, and Google severed from companies like Waze, Nest, and DoubleClick. Second, Warren is proposing the introduction of new legislation that would designate companies that exceed $25 billion or more in revenue and also offer an online marketplace as “platform utilities“—the upshot being that Amazon would have to relinquish its eponymous Marketplace, and Google would have to split from its ad exchange and Search divisions. The concept of a “platform utility” is partially derived from what’s known as the essential facilities doctrine—a complex theory of antitrust enforcement once cited by courts in service of forcing railroad companies that develop bridges to share those bridges with competitors. Warren’s proposal advocates for codifying the doctrine as law, and would essentially require any business found to be in control of an ‘essential facility’ to do business with competitors.

This is relevant because, as the recent controversy between Apple and Spotify demonstrates, companies can use their platforms to suppress competition.

David Dayen, April 1, 2019, HOW TO THINK ABOUT BREAKING UP BIG TECH, The Intercept, //theintercept.com/2019/04/01/elizabeth-warren-tech-regulation-2020/

Apple does have a legitimate antitrust problem with the App Store, as Thompson acknowledges. Spotify has complained to the European Union that Apple takes a 30 percent cut from all revenues from its iPhone app, while preventing it from emailing users directly or allowing upgrades. This indirectly benefits Apple Music, Spotify says. Apple has accused Spotify of using “misleading rhetoric” in its complaint. Spotify wants changes to Apple’s conduct on the App Store — which is not only fair game for traditional antitrust that can identify anti-competitive impositions of market power, but is also part of Warren’s plan, which mandates fair and nondiscriminatory treatment to marketplace participants. And it shows how Warren is highlighting a consumer welfare issue: If Spotify has to absorb a 30 percent transfer of revenues to Apple for use of its iPhone customers, it likely has to raise prices, and it cannot offer services like upgrades directly.

Arguing for new regulations may also be needed because the current laws are weak.

Matthew Yglasias, May 3, 2019, The Push To Brieak Up Big Tech, Explained, //www.vox.com/recode/2019/5/3/18520703/big-tech-break-up-explained

The Clayton Antitrust Act, for example, is more than 100 years old and its predecessor the Sherman Act is even older. Both arose in an era when increasingly financial sophistication was allowing the creation of large industrial organizations — often with classic Gilded Age generic names like US Steel, Standard Oil, and the American Sugar Refining Company — that dominated their respective industries. Rather than specifying any particular analysis to address worries about monopolization, the Clayton Act simply bars one company from acquiring another when “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly” and does not offer much in the way of further definition or elaboration of what that means.

The Status Quo, Relevant History of Antitrust Law, and Framework

In the status quo (the current world we live in), Antitrust laws is not significantly enforced generally and it is not being applied to Big Tech.

Clara Hendrickson and William A. GalstonWednesday, Brookings Institute, December 6, 2017, Big technology firms challenge traditional assumptions about antitrust enforcement, //www.brookings.edu/blog/techtank/2017/12/06/big-technology-firms-challenge-traditional-assumptions-about-antitrust-enforcement/T

The Microsoft lawsuit was the last major monopolization case brought by the U.S. The ensuing 20-year dry spell is often cited by those who argue enforcement has been too timid. President Barack Obama’s administration vowed to get tough on dominant companies in 2009, but it didn’t follow through. The number of monopoly cases brought by the U.S. dropped sharply from an average of 15.7 cases per year from 1970 to 1999 to less than three between 2000 and 2014.

Why?

It is not being applied and enforced against Big Tech because the Chicago School of Economic Thought, which currently dominates antitrust considerations in the courts and legislature prioritizes price as the standard for determining whether or not antitrust considerations are significant. In other words, if the price for the consumer (the purchaser) of the good is not high, this school of thought says we do not need to worry about any monopolization.

Lisa Khan, 2017, Amazon’s Antitrust Paradox, //www.yalelawjournal.org/note/amazons-antitrust-paradox, Lina Khan is an Academic Fellow at Columbia Law School. She researches and writes on antitrust law and competition policy.

The Chicago School approach to antitrust, which gained mainstream prominence and credibility in the 1970s and 1980s, rejected this structuralist view. In the words of Richard Posner, the essence of the Chicago School position is that “the proper lens for viewing antitrust problems is price theory.” Foundational to this view is a faith in the efficiency of markets, propelled by profit-maximizing actors. The Chicago School approach bases its vision of industrial organization on a simple theoretical premise: “[R]ational economic actors working within the confines of the market seek to maximize profits by combining inputs in the most efficient manner. A failure to act in this fashion will be punished by the competitive forces of the market.”

While economic structuralists believe that industrial structure predisposes firms toward certain forms of behavior that then steer market outcomes, the Chicago School presumes that market outcomes—including firm size, industry structure, and concentration levels—reflect the interplay of standalone market forces and the technical demands of production.32 In other words, economic structuralists take industry structure as an entryway for understanding market dynamics, while the Chicago School holds that industry structure merely reflects such dynamics. For the Chicago School, “[w]hat exists is ultimately the best guide to what should exist.”33

Practically, the shift from structuralism to price theory had two major ramifications for antitrust analysis. First, it led to a significant narrowing of the concept of entry barriers. An entry barrier is a cost that must be borne by a firm seeking to enter an industry but is not carried by firms already in the industry.34 According to the Chicago School, advantages that incumbents enjoy from economies of scale, capital requirements, and product differentiation do not constitute entry barriers, as these factors are considered to reflect no more than the “objective technical demands of production and distribution.”35 With so many “entry barriers . . . discounted, all firms are subject to the threat of potential competition . . . regardless of the number of firms or levels of concentration.”36 On this view, market power is always fleeting—and hence antitrust enforcement rarely needed.

The second consequence of the shift away from structuralism was that consumer prices became the dominant metric for assessing competition. In his highly influential work, The Antitrust Paradox, Robert Bork asserted that the sole normative objective of antitrust should be to maximize consumer welfare, best pursued through promoting economic efficiency. Although Bork used “consumer welfare” to mean “allocative efficiency,”38 courts and antitrust authorities have largely measured it through effects on consumer prices. In 1979, the Supreme Court followed Bork’s work and declared that “Congress designed the Sherman Act as a ‘consumer welfare prescription’”39—a statement that is widely viewed as erroneous.40 Still, this philosophy wound its way into policy and doctrine. The 1982 merger guidelines issued by the Reagan Administration—a radical departure from the previous guidelines, written in 1968—reflected this newfound focus. While the 1968 guidelines had established that the “primary role” of merger enforcement was “to preserve and promote market structures conducive to competition,”41 the 1982 guidelines said mergers “should not be permitted to create or enhance ‘market power,’” defined as the “ability of one or more firms profitably to maintain prices above competitive levels.”42 Today, showing antitrust injury requires showing harm to consumer welfare, generally in the form of price increases and output restrictions.

In contrast, there are reasons to be concerned about the concentration of economic power, not just the impact of price on consumers. Why? Because concentrated economic power is a threat to democracy.

Lisa Khan, 2017, Amazon’s Antitrust Paradox, //www.yalelawjournal.org/note/amazons-antitrust-paradox, Lina Khan is an Academic Fellow at Columbia Law School. She researches and writes on antitrust law and competition policy.

Yet fear of the political power that results from increased economic concentration is at the heart of American antitrust legislative history. The 1641 colonial legislature of Massachusetts’ Charters and General Laws declared, “There shall be no monopolies granted or allowed among us but of such new inventions as are profitable to the country, and that for a short time.” Thomas Jefferson sought to include an antimonopoly clause in the U.S. Constitution, and in 1890 Congress passed its first major antitrust legislation, the Sherman Antitrust Act. While Robert Bork’s seminal text, The Antitrust Paradox, argues that achieving consumer welfare was the sole aim of the act, the economist Christopher Grandy finds that consumer welfare failed to survive the legislative process. Instead, legislators were just as concerned about the welfare of workers and entrepreneurs, and they were deeply fearful that corporate consolidation would threaten American democracy. Describing the origins of antitrust law, Supreme Court Justice William Douglas famously wrote in his dissent in United States v. Columbia Steel Co., that the philosophy of the Sherman Act “is founded on a theory of hostility to the concentration in private hands of power so great that only a government of the people should have it.”

Tim Wu, a law professor at Columbia, explains the problems with the concentration of wealth

The answers, I think, are plain. We have managed to recreate both the economics and politics of a century ago—the first Gilded Age—and remain in grave danger of repeating more of the signature errors of the twentieth century. As that era has taught us, extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership. Yet, as if blind to the greatest lessons of the last century, we are going down the same path. If we learned one thing from the Gilded Age, it should have been this: The road to fascism and dictatorship is paved with failures of economic policy to serve the needs of the general public. Wu, Tim. The Curse of Bigness (p. 14). Columbia Global Reports. Kindle Edition. Tim Wu, law professor, Columbia, 2018, The Curse of Bigness,: Antitrust in the Bigness, Kindle edition, page number at end of card

This was contextualized on May 9th when Chris Hughes, the cofounder of Facebook, called for its breakup

CNN, May 9, 2019, //www.cnn.com/2019/05/09/tech/facebook-chris-hughes-break-up/index.html?fbclid=IwAR3S44C3Qssln4TWn-xOANjFldQRhvb6eC78ph0e_cKsB0xLZyhWMTu9L38 Facebook co-founder Chris Hughes: It’s time to break up Facebook

Chris Hughes helped Mark Zuckerberg transform Facebook from a dorm-room project into a real business. Now, he’s calling for the company to be broken up. In a lengthy opinion piece published Thursday by the New York Times, Hughes says that Zuckerberg has “unchecked power” and influence “far beyond that of anyone else in the private sector or in government.” It’s time, he writes, for regulators to break up Facebook (FB). “Mark is a good, kind person. But I’m angry that his focus on growth led him to sacrifice security and civility for clicks,” writes Hughes. “I’m disappointed in myself and the early Facebook team for not thinking more about how the News Feed algorithm could change our culture, influence elections and empower nationalist leaders,” he continues. “And I’m worried that Mark has surrounded himself with a team that reinforces his beliefs instead of challenging them.” Facebook Fast Facts Facebook Fast Facts Hughes is the latest in a series of prominent entrepreneurs and tech executives to call for stricter regulation of Facebook and other online platforms. They are speaking out as countries around the world rush to put better controls in place following a wave of scandals related to data privacy, election meddling and the spread of misinformation. Zuckerberg has signaled that he’s open to some regulation. In an opinion piece published in the Washington Post in March, the CEO tried to sketch out areas where he thought regulation should start. In Hughes view, Facebook’s calls for regulation are a way to head off a potential antitrust case. Hughes, who has not worked at Facebook in over a decade, argues that Zuckerberg’s competitive drive and quest for domination has led the company to control an estimated 80% of the world’s social network revenue. The entrepreneur says that Facebook is now a “powerful monopoly” that should be forced to reverse its acquisitions of Instagram and Whatsapp. Hughes also says the US government should create a new agency to regulate tech companies. “[Zuckerberg] has created a leviathan that crowds out entrepreneurship and restricts consumer choice. It’s on our government to ensure that we never lose the magic of the invisible hand,” Hughes writes.

So, you can see from this overview where the fundamental framework questions of topic are headed: Should low consumer prices be the standard (Con) or should we favor the break-up of large companies in order to prevent the concentration of economic power?

Argument Preview

Based on the previous discussion, I’m sure you can see where the arguments on this topic are headed.

Pro teams will argue that Big Tech’s concentration of wealth and power in their industry has created a monopoly that threatens to create enormous concentrations of economic power. These concentrations of economic power may benefit consumers from a price perspective, at least in the short-term, but they could also result in price increases in the long-term and turn responsible for undermining democracy as the power and concentration of wealth increases. Some Pro teams may even argue that it is leading to the monopolization of private information that threatens privacy.

Con teams will argue that the Big 5 produce free and low cost services that have dramatically improved the quality of life for many individuals.

These Pro and Con arguments will be unpacked in more detail in subsequent essays.

Topic Vocabulary

Acquisition. An acquisition is when one company acquires another.

Antitrust. Antitrust is the idea that no business should be able to acquire too much economic power and that if it does it should be broken up by low.

Competition. Competition is the idea that businesses can compete with each other on a fair playing field.

Consumer. A consumer is the purchaser of goods

Commerce. Commerce is the buying and selling of goods.

Entrepreneur. An entrepreneur is someone who starts a business.

Human Resources (HR). HR deals with the management of employees

Merger. A merger occurs when two companies come together.

Monopoly. A monopoly happens when one company controls a massive amount of the space in a particular part of the economy.

Topic Concepts

Chicago School. The Chicago School argued that as long as prices are kept low that there is no harm to monopolization.

Questions

What is Warren’s plan to break-up the Big Tech Industry?

Wbat is the Sherman Act?

What is the Clayton Act?

Higher Order Questions

Why is concentrated economic power a threat to democracy?

How is Amazon similar to Standard Oil?

If someone ask you in crossfire what “big tech” is, how would you explain it?

If someone asked you in crossfire what “antitrust “ is, how would you explain it?

Explain up to three reasons why anti-trust should be applied to big tech

Explain up to three reasons why anti-trust should not be applied to big tech

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