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

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

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Monopolization

The central Pro issue related to this topic is that allowing the Big Tech companies to monopolize their teach space and compete in other industry will enable them to undermine consumer choice, raise prices (at leats in the long-term) , and concentrate economic power.

There is considerable evidence that these companies are or could be monopolies.

Isaac Cheifetz is an executive search consultant focused on leadership roles in analytics and digital transformation, April 20, 2018, //www.startribune.com/it-might-be-time-to-break-up-the-tech-giants/480411843/ It might be time to break up the tech giants

  1. Amazon continues to aggressively pursue new online industries, in groceries (Whole Foods), prescriptions and even event ticketing. Whole Foods was barely making money as a public company. Given the much-publicized reduction in prices at Whole Foods after Amazon’s acquisition, it is very likely Amazon is subsidizing Whole Foods’ business to gain market share, a violation of antitrust law.

Amazon has also been in the news after President Donald Trump attacked the company for taking advantage of U.S. Postal Service discounts, though this is a tactical issue compared to Amazon as a market force.

  1. Google, as described in a recent New York Times article, is fighting a series of lawsuits by small competitors who innovated better than Google in search technologies and found the monolith subverting their ability to be found online by potential customers. Some have even credibly alleged that Google has stolen intellectual property.

The Big 5 make a 10th of all corporate profits

Economist, April, 26, 2018, America’s antitrust apparatus prepares to act against big tec, Apr 26th 2018, //www.economist.com/business/2018/04/26/americas-antitrust-apparatus-prepares-to-act-against-big-tech

First, antitrust worries, which take in big tech firms’ high market shares, buying-up of promising competitors, and potential monopsony power over suppliers and vendors. The five biggest American tech firms together make about a tenth of all corporate profits.

Big Tech just buys out all of their competitors

Tim Wu, law professor, Columbia, 2018, The Curse of Bigness,: Antitrust in the Bigness, Kindle edition, page number at end of card

Even if a firm did manage to gain temporary dominance, there was nothing to be afraid of. We were not speaking of the evil monopolists of old. The new firms were instead devoted to spreading sweetness and light, goodwill toward all men—whether access to information (Google), good books for cheap (Amazon), or the building of a global community (Facebook). Not only did they not charge high prices, sometimes they didn’t even charge at all. Google would give you free email, free map apps, free cloud storage. Hence businesses like Facebook or Google needed to be seen as more akin to a charity. Who would sue the Red   Cross for its “monopoly” on disaster relief? In these heady times, only a malcontent would dare suggest that just maybe, business and economics had not quite been reinvented forever. Or that what was taken to be a new order might, in fact, just be a phase that was destined to come to an end as firms better understood the market and its new technologies. The good times were on. After a decade of open chaos and easy market entry, something surprising did happen. A few firms—Google, Ebay, Facebook, and Amazon—did not disappear. They hit that five-year mark of obsolescence with no signs of impending collapse or retirement. Instead, the major firms seemed to be sticking, and even growing in their dominance. Suddenly,   there weren’t a dozen search engines, each with a different idea, but one search engine. There were no longer hundreds of stores that everyone went to, but one “everything store.” And to avoid Facebook was to make yourself a digital hermit. There stopped being a next new thing, or at least, a new thing that was a serious challenge to the old thing. Unfortunately, antitrust law failed to notice that the 1990s were over. Instead, for a decade and counting, it gave the major tech players a pass—even when confronting fairly obvious dangers and anticompetitive mergers. That is best exemplified by the Facebook story. Launched in 2004, Facebook quickly dispatched its rival MySpace, which had been a rare Los Angeles tech success story, but had   become a mess of intrusive advertising, fake users, and trolls. In just a few years, Facebook achieved an early dominance over general purpose social networking. But by the 2010s, Facebook faced one of its most serious challengers, a startup named Instagram. Instagram combined a camera app with a social network on which it was easy and fast to share photos on mobile. It was popular with younger people, and it was not long before some of its advantages over Facebook were noticed. As business writer Nicholas Carlson said at the time, Instagram “allows people to do what they like to do on Facebook easier and faster.” Having already gained 30 million users in just eighteen months of existence, Instagram   was poised to become a leading challenger to Facebook based on its strength on mobile platforms, where Facebook was weak. By the doctrine of internet time, Facebook, then eight years old, was supposed to be heading into retirement. But the disruption narrative was rudely interrupted. Instead of surrendering to the inevitable, Facebook realized it could just buy out the new. For just $1 billion, Facebook eliminated its existential problem and reassured its investors. As TIME would put it, “Buying Instagram conveyed to investors that the company was serious about dominating the mobile ecosystem while also neutralizing a nascent competitor.” When a dominant firm buys its a nascent   was poised to become a leading challenger to Facebook based on its strength on mobile platforms, where Facebook was weak. By the doctrine of internet time, Facebook, then eight years old, was supposed to be heading into retirement. But the disruption narrative was rudely interrupted. Instead of surrendering to the inevitable, Facebook realized it could just buy out the new. For just $1 billion, Facebook eliminated its existential problem and reassured its investors. As TIME would put it, “Buying Instagram conveyed to investors that the company was serious about dominating the mobile ecosystem while also neutralizing a nascent competitor.” When a dominant firm buys its a nascent   challenger, alarm bells are supposed to ring. Yet both American and European regulators found themselves unable to find anything wrong with the takeover. The American analysis remains secret, but we have the United Kingdom’s report. Its analysis, such as it was, went as follows. Facebook did not have an important photo-taking app, meaning that Facebook was not competing with Instagram for consumers. Instagram did not have advertising revenue, so it did not compete with Facebook either. Hence, the report was able to reach the extraordinary conclusion that Facebook and Instagram were not competitors. It takes many years of training to reach conclusions this absurd. A teenager could have told you that Facebook and Instagram   were competitors—after all, teenagers were the ones who were switching platforms. With this level of insight, the world’s governments in the 2010s did nothing to stop the largest firms from buying everyone and anyone who might be a potential threat, in a buying spree worthy of John D. Rockefeller himself. Nothing was learned from the Instagram failure: Facebook was able to buy its next greatest challenger, WhatsApp, which offered a more privacy-protective and messaging-centered competitive threat. The $19 billion buyout—as suspicious as J.P. Morgan’s bribe of Andrew Carnegie—somehow failed to raise any alarm. At the time, many were shocked at the price. But when one is actually agreeing to split a monopoly as lucrative as generalized social   media, with over $50 billion in annual revenue, the price suddenly makes sense. In total, Facebook managed to string together 67 unchallenged acquisitions, which seems impressive, unless you consider that Amazon undertook 91 and Google got away with 214 (a few of which were conditioned). In this way, the tech industry became essentially composed of just a few giant trusts: Google for search and related industries, Facebook for social media, Amazon for online commerce. While competitors remained in the wings, their positions became marginalized with every passing day.   If many of these acquisition were small, or mere “acqui-hires” (i.e., acquisitions to hire employees), others, like Face-book’s Wu, Tim. The Curse of Bigness (p. 124). Columbia Global Reports. Kindle Edition.

Amazon is effectively blocking competitors

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/

Some of these restrictions, like those on banks or television stations, have been dismantled. And there are cases of companies selling products in a store while also owning the store: Kirkland products at Costco are ubiquitous, for example. But as Lina Khan, scholar and staffer for Cicilline’s antitrust subcommittee, has pointed out, the key question is whether the platform, be it brick and mortar or digital, is creating a bottleneck by privileging its own products over rivals. And there’s a lot of evidence that Amazon in particular does just that, reacting to high-selling products by creating a generic version, and down-ranking the competitor in its search. Because half of all e-commerce is sold on Amazon, competitors have few alternatives but to sell in what feels like a rigged marketplace.

And this concentration of economic power could be disastrous.

Tim Wu, law professor, Columbia, 2018, The Curse of Bigness,: Antitrust in the Bigness, Kindle edition, page number at end of card

The concentration of wealth and power has helped transform and radicalize electoral politics. As in the Gilded Age, a disaffected and declining middle class has come to support radically anti-corporate and nationalist candidates, catering to a discontent that transcends party lines. A renewed economic nationalism around the world blames immigrant workers, foreign products, or elite conspiracies for the diminishment of the middle class. There is widespread anger at big business and how they treat customers, especially in concentrated or monopolized industries like insurance, pharmaceuticals, airlines, and other insensitive behemoths. Many fear Google, Amazon, and Facebook, and their power over not just commerce, but over politics, the news, and our private information. Wu, Tim. The Curse of Bigness (p. 15). Columbia Global Reports. Kindle Edition. Wu, Tim. The Curse of Bigness (p. 15). Columbia Global Reports. Kindle Edition.

Wu contiunues:

The concentration of wealth and power has helped transform and radicalize electoral politics. As in the Gilded Age, a disaffected and declining middle class has come to support radically anti-corporate and nationalist candidates, catering to a discontent that transcends party lines. A renewed economic nationalism around the world blames immigrant workers, foreign products, or elite conspiracies for the diminishment of the middle class. There is widespread anger at big business and how they treat customers, especially in concentrated or monopolized industries like insurance, pharmaceuticals, airlines, and other insensitive behemoths. Many fear Google, Amazon, and Facebook, and their power over not just commerce, but over politics, the news, and our private information. Wu, Tim. The Curse of Bigness (p. 15). Columbia Global Reports. Kindle Edition. Wu, Tim. The Curse of Bigness (p. 15). Columbia Global Reports. Kindle Edition.

Privacy

A second problem related to the concentration of power among the Big 5 tech companies concerns a loss of privacy. There are a number of reasons that privacy is threatened.

One, it gives a massive amount of consumer data to one company.

Two, it allows companies to share data across services to compete against other similar service providers, putting them at a substantial disadvantage.

Three, it threatens freedom because the tech companies can sell the data.

Breaking up companies protects privacy because they wont be able to share information

Economist, April, 26, 2018, America’s antitrust apparatus prepares to act against big tec, Apr 26th 2018, //www.economist.com/business/2018/04/26/americas-antitrust-apparatus-prepares-to-act-against-big-tech

Antitrust is vital because any solution to the problems of big tech will require innovation as well as regulation. For example, privacy could be protected by the rise of new “fiduciary” companies that act as trusted, anonymised intermediaries between users and the big tech firms.

Innovation

Should apply anti-trust law to break the concentration of economic and political power. Exposing IBM to antitrust and breaking up AT&T spurred massive innovation

Tim Wu, law profess @ Columbia, December 2018, Tech Monopolies Are Stifling U.S. Innovation. Antitrust Enforcement May Help, //www.brinknews.com/is-antitrust-enforcement-the-wests-best-weapon-against-chinese-tech/

Tim Wu: There’s a both political case and a strong economic case for antitrust enforcement. I think first of all, it’s a question for citizens and engages people’s capacity, not necessarily in what position they hold in the economy, but just in general. There are a lot of questions about whether democracy remains representative of what people want and concerns that excessive private influence on government, if not resisted, eventually leads to more extreme politics and the election of ever more extreme people. That’s the political case. I think the economic case for constraints on private power is also very strong. Economics 101 suggests that too many monopolies are bad for an economy and tend to create long-term stagnation. The United States has had a vibrant economy for most of its history, but occasionally, it has had industries that get locked up by the monopolies or oligopolies. A good example, I think, is the telecom industry, which had fallen into a pretty stagnative state by the ’60s and was benefited greatly by the breakup, even though they didn’t like it at the time. BRINK News: What do you think are the repercussions of pursuing an antitrust agenda that might hobble domestic companies and embolden foreign competitors? Professor Wu: I think there is an allure to a policy that says we should be supporting and even subsidizing and protecting our national champions, but I think it goes against what we’ve learned, over the last 50 years or so, about the wisdom of national championship policies. I think the wiser version of American industrial policy has usually suggested that you want as much domestic competition as possible in order to make the companies as strong as possible. A strong example comes from the last time America and the tech industry faced a foreign challenge, and that is in the ’70s and ’80s when Japan was thought to be challenging the United States for supremacy in tech markets. Following Mark Zuckerberg’s logic, for example, the right thing to do would’ve been to protect and support IBM, AT&T and Xerox, which were the leading American tech firms then. Instead, the United States federal government sued both IBM and AT&T. They put IBM through 13 years of antitrust scrutiny. They broke AT&T into eight pieces. If you look at the results, the scrutiny of IBM led to, among other things, the personal computer industry and the birth of an independent software industry, both of which became much more important than IBM. And in the case of the breakup of AT&T, you had the birth of an online networking industry, CompuServe AOL, the modem industry, and over the long term, the Internet economy, which is now the mainstream of U.S. tech. Do you protect today’s champions by giving them a pass on antitrust law? That, I think, has the best chance of making China the tech power of the future. Trying to encourage competitors has proven to be a much better policy. BRINK News: What do you fear most about the current weakened state of antitrust enforcement? Professor Wu: I think that my greatest fear of all is that it will take the United States further down the path of greater wealth and income inequality, create greater divides between winners and losers, and make it almost impossible to challenge in many of these industries. That may lead the country into such a fragmented and dangerous state that people become increasingly angry and turn to more extreme solutions. History suggests this has happened in other places. SHARE I think a very risk-averse mindset has settled in in government. In a lot of areas of law enforcement, it just seems that extreme caution has become the watchword. I think my narrower concern is that you’ll have an economy that produces a lot of profit for shareholders but remains one that does not do a lot for most of the country. You’ll have a decline in growth and entrepreneurship, which have been the backbones of the U.S. economy. BRINK News: In the past two years, we’ve seen many former Obama administration officials—such as yourself—saying, “I wish we had done this when we were in power.” How can we revive enforcement courage and embolden officials to act when they’re actually in power? Professor Wu: That’s a very good question because you’re right, you have a lot of people saying, “Why did we let this happen?” or “Why did we do that?” Part of that is because things are sometimes clearer years later. But also, I think it has a lot to do with a deeper problem about personnel, and why people go to work in government, and their mindset. I think a very risk-averse mindset has settled in in government. This extends beyond antitrust to prosecution. There’s been a lot of documentation of the idea that prosecutors have been too afraid to bring cases and therefore hadn’t, for example, done much after the financial crisis because they were afraid of losing their cases. So there’s a broader challenge for lawyers to get back their mojo and quit being such scaredy-cats. In a lot of areas of law enforcement, it just seems that extreme caution has become the watchword. BRINK News: It seems as though Europe is more forward-thinking on regulation and enforcement than the United States. I’m curious what you make of that trajectory. Professor Wu: I have mixed feelings about Europe. Obviously, they’re much more active. They’re much more concerned about privacy issues raised by companies. They’re much quicker to bring cases. But they have, in my view, approved mergers that even Americans haven’t been willing to approve. I think they’ve gone way overboard in their approval of mergers in the fertilizer and chemical sector. My view is that they’ve fallen down on the remedy side. They make a strong case for these complex regulatory remedies that don’t seem to be working very well, and it’s given companies the sense that they have a green light as long as they agree to a bunch of complicated conditions. I don’t know what oversight of those conditions looks like. They always seem to end up with these extremely complicated programs. I think that Europe needs to re-understand the importance of breakups and blocking mergers. BRINK News: In your book, The Curse of Bigness: Antitrust in the New Gilded Age, you talk about the need to evaluate the economy in a more day-to-day way that resonates with common people. This seems like a perennial issue. Why has there been so little movement on the front? Professor Wu: I think a lot of this has to do with the failure of communism and Marxism as viable alternatives. There was a huge part of the world which took the position that capitalism wasn’t properly assessing what people needed. But the alternative was such a failure that I think it created something of a reaction. Since then, I think people imagined the march of progress would be toward greater protections for workers and a more humanistic system. But things have drifted in the other direction over the last 20 years. And I guess the backlash is coming again. This is a perennial issue. I don’t think you solve it. I don’t think there are that many people anymore who think if you just have a dictatorship of the proletariat that that would solve all their problems. But figuring out what continues to generate wealth and a vibrant society without the inherent cruelty of raw capitalism—I think figuring that out will never go away. This interview has been edited and condensed for clarity.

Antitrust law should be applied to Big Tech

Sally Hubbard is a former assistant attorney general in the New York AG Antitrust Bureau who heads up big tech and monopolization for The Capitol Forum, January 2, 2019, , The case for why Big Tech is violating antitrust laws, //www.cnn.com/2019/01/02/perspectives/big-tech-facebook-google-amazon-microsoft-antitrust/index.html

Facebook’s exclusionary conduct goes beyond its algorithm: Internal company documents recently made public by the UK Parliament reveal how Mark Zuckerberg moved to exclude a rival app from using Facebook integrations available to others. On top of using their monopoly power to exclude competition and take over new markets, the tech giants have also grown through hundreds of acquisitions. Many of these deals violate the Clayton Act, Section 7, which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” Think Google’s acquisitions of Android, YouTube, AdMob and DoubleClick, and Facebook’s acquisitions of Instagram and WhatsApp. Like the Sherman Act, the Clayton Act’s intent has been subverted by misguided case law. Even though antitrust doctrine has gone off the rails, regulators cannot give up. They should bring the strongest cases possible, as court victories can help correct antitrust precedent. Losses can only do so much damage to already-crippled statutes. And Congress should also step in and fix bad court decisions so that the antitrust laws can work for all of us again.