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REQUIREMENT: ON ETHICS: As CEO of the leading firm in a…
REQUIREMENT:
ON ETHICS: As CEO of the leading firm in a traditional industry (such as meatpacking or shoemaking) with a 60% market share, do you think Big Tech’s market share to be too large that would justify antitrust actions?
NOTE : Dont Pla-giarize
Big Tech firms are both popular (measured by the number of users) and unpopular (measured by the number of critics). Two of them, Google and Facebook, have recently been sued by the US government for anticompetitive conduct. Have they indeed violated antitrust laws?
“Big Tech” (for the purposes of this case) refers to Alphabet (which owns Google), Amazon, Apple, and Facebookthe four dominant technology firms being investigated by the Federal Trade Commission (FTC) starting in February 2020. Exhibit 1 shows how big Big Tech are. Collectively, these four firms plus Microsoft accounted for 18% of the stock market capitalization of the Standard & Poor’s 500 at the end of 2019. Starting in 2018, Apple was the first US firm to hit a $1 trillion capitalization, soon followed by Alphabet, Amazon, and Microsoft. Facebook is expected to follow.
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Exhibit 1 How Big Are Big Tech? Internet search Online Mobile operating Social media Digital ad commerce
systems revenue US market share Google: 80% or Amazon: 38% Apple iOS: 56%* : Facebook: 60%1, Google:
37%4. 90%4 Google Android: 68%, or 99%2 Facebook: 22% 107 4 Sources: Data extracted from (1)…
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Is Big Always Bad?
Starting with the 1890 enactment of the Sherman Actthe world’s first antitrust lawAmericans have loved to hate big firms. A small army of antitrust enforcers in the two federal agenciesthe Department of Justice (DOJ) and the FTCas well as state attorney’s offices work day in and day out to curb anticompetitive conduct and challenge big “evil” firms, ranging from Standard Oil (1911) to Microsoft (1998-2001). “A lot of people wonder,” according to US Attorney General William Barr during his January 2019 confirmation hearings, “how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers.” Prior to the two US government lawsuits against Google and Facebook in late 2020, there was no shortage of loud voices calling for the antitrust agencies to wake up. Here are some headlines: “Should Digital Monopolies Be Broken Up?” (Economist, 2014), “Taming the Behemoths” (Fortune, 2018), “Antitrust Wall Street” (Bloomberg Businessweek, 2019), and “The Government v. the Tech Giants” (Wall Street Journal, 2019).
Antitrust is always controversial. After all, being big does not necessarily mean being bad. “Obtaining a monopoly by superior products, innovation, or business acumen is legal,” according to the FTC’s Guide to Antitrust Laws, “however, the same result achieved by exclusionary or predatory acts may raise antitrust concerns.” Politically, Big Tech seem to be a great punching bag for politicians to score points and attract votes. Socially, backlash against Big Tech has coined a new word: techlash. But legally, does the government have a case?
Picking targets, the antitrust community has focused neither on Amazon nor Apple, which face formidable competitors; nor on Microsoft, which has been dealt with in a landmark case two decades ago. Google and Facebook are the top two targets for now. DOJ and FTC have some division of labor, with DOJ focusing on Google and FTC on Facebook.
“Google has used anticompetitive tactics to maintain and extend its monopolies,” alleged the DOJ in the very first paragraph of its legal complaint that initiated its lawsuit (together with 11 states) in October 2020, “in the markets for general search engines, search advertising, and general search text advertisingthe cornerstone of its empire.” For example, a Google Android executive was quoted in the legal complaint “for world domination.” Google also paid Apple between $8 billion and $12 billion a year to access Apple’s massive consumer base. “By suppressing competition, Google has more power to manipulate the quantity of ad inventory and auction dynamics in ways that allow it to charge advertisers more than it could in a competitive market . . .” the charge sheet continued, “Google’s monopoly in general search services also has given the company extraordinary power as the gateway to the internet, which it uses to promote its own web content and increase its profits.”
Currently with two billion users worldwide, Facebook is free. But users willingly pay with data about themselves tracked by Facebooka business model very similar to Google’s. In an influential 2019 article “The Antitrust Case Against Facebook,” Dina Srinivasan, an entrepreneur, argued that Facebook has engaged in a series of anticompetitive conduct that elbows out competitors and tricks consumers to trust it. Founded in 2004, Facebook’s history is one that is constantly on the edge of violating user privacy. In the beginning, in competition with MySpace, Facebook promised, “We do not and will not use cookies to collect private information from any user.” It thus won numerous customers. However, by 2007, Facebook had been publicly caught for tracking users. Facing an uproar, founder and CEO Mark Zuckerberg apologized. Then in 2011, Facebook was again caught tracking users. It first claimed that the finding was a “bug” and then pleaded to users: “Please trust us . . . we don’t use our cookies to track you.” But in the same year, Facebook quietly obtained a patent “for a method . . . for tracking information about the activities of users of a social networking system while on another domain,” according to its patent registration. In 2011, it settled charges with the FTC regarding false statements regarding its privacy policy.
In 2012, with more than a billion users, Facebook went through a record-breaking IPO (a $104 billion market capitalization). By 2014, with all competitors gone, Facebook’s monopoly was complete. It announced it would track users, even those who indicated “No, thanks.” According to Srinivasan, Facebook “would do precisely what it had spent seven years promising it did not and would not do, and finally accomplished what the previous competitive market had restrained it from doing.” Furthermore, it demanded millions of websites that had signed up for Facebook plugins to change their privacy policy to extract from their users the consent to have Facebook track them. At the same time, Facebook was involved in a series of scandals, such as those associated with Cambridge Analytics’ abuse of user data and with alleged Russian interference in the 2016 US presidential election. Facing a mess, Zuckerberg was yanked to Congress for hearings in 2018.
While Facebook is unpopular, has it violated antitrust laws? The FTC in its December 2020 lawsuit alleged that Facebook “is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.” A leading challenge for antitrust enforcement is market definition. Critics argue that there is a blind spot in antitrust enforcers’ understanding of the nature of markets in which Facebook operates. A case in point is the 2012 unconditional clearance of the Facebook-Instagram merger by the FTC. Antitrust enforcers first focused on the photo app (consumer) market. Since Facebook did not have a significant photo app, it was not viewed as a serious competitor to Instagram. The second focus was on the advertising market. Because Instagram was earning no advertising revenue, it was found by antitrust enforcers to be a noncompetitor to Facebook. Having amassed 30 million users, Instagram was widely viewed by the media as one of Facebook’s most serious competitors. A second case is the 2014 unconditional clearance of the Facebook-WhatsApp merger by the FTC. Again, Facebook’s motive to eliminate a competitor was so clear to the media but invisible to antitrust enforcers. How can these two mergers that, according to critics, have clear anticompetitive implications be cleared by the antitrust authorities? What is the problem?
Attention Market
A major problem, according to Columbia University law professor Tim Wu, is that Facebook (and Google and others) operate in a previously ignored market: the attention market. He made three points:
Attention is scarcelimited by 168 hours every week.
Attention cannot be stored or saved and must be consumed.
Attention has value.
Globally, more than $580 billion was spent on advertising every year (of which $200 billion was spent in the United States). Viewed this way, Facebook is a leading practitioner of “attention brokerage”resale of attention to make money. As a finite resource, attention taken (measured in time) has economic value lost to consumers. “Sure, we may waste plenty of time as it is,” Wu wrote, “but at least it is ours to waste.” In this sense, taking away attention becomes the deprivation of a liberty, which has constitutional value. Facebook clearly understands the value of such attention. Despite promises to regulators that after the mergers it would not pool user data with Instagram and WhatsApp, Facebook ended up doing exactly thatsharing data to better capture user attention via targeted ads. Using time spent as a proxy for attention, Wu estimated that Facebook had a 55% social media market share and Instagram 13%a combined total of 68%. Srinivisan estimated Facebook’s and Instagram’s market share to be 66% and 18%, respectivelya combined total of 84%. In comparison, using the number of users as a market, Srinivasan reported that 99% of US adults who use social media, representing two-thirds of all US adults, use Facebook. The FTC in its lawsuit estimated Facebook to have “a dominant share of the US personal social networking market (in excess of 60%).”
Clearly, there is a lack of consensus on how to define the markets in which Facebook (and other Big Tech firms) operate. However, this has not prevented antitrust advocates from prescribing medicines:
break up Big Tech firmsand unwind some of the previously approved mergers such as Instagram and WhatsApp,
turn Big Tech firms such as Facebook and Google into regulated utilities and cap their prices and return on capital, and
constrain their growth by preventing them from acquiring smaller rivals.
The Goals of Antitrust
What are the goals of antitrust authorities when dealing with Big Tech? The DOJ’s October 2020 lawsuit against Google requested that the court “enter structural relief as needed to cure any anticompetitive conduct,” without mentioning any specifics such as breakup, divestitures, or unbundling. The FTC’s December 2020 lawsuit against Facebook was more specific: it demanded divestiture of assets, “including, but not limited to, Instagram and/or WhatsApp.” Essentially, the FTC admitted that it was a blunder to unconditionally approve Facebook’s Instagram and WhatsApp mergers. The FTC is now endeavoring to achieve something that has not happened in four decades: the breakup of a great American company. Two decades ago, DOJ won the case to break up Microsoft, but failed to implement it because Microsoft appealed and won. The last major US company to be broken up was AT&T in 1984.
Although unpopular, Big Tech has many defenders. They are the crown jewel of American capitalism. For example, in April 2021, the market capitalization of Alphabet was larger than Australia’s GDP (the world’s 12th-largest economy), and that of Facebook was larger than Turkey’s GDP (the world’s 20th-largest economy). Breaking them up can carry national-security risk in light of heightened strategic competition with China. Alibaba, Baidu, and Tencent would love to see the wings of their global rivals clipped. Turning Big Tech into utilities will definitely cripple the incentive to innovate. Constraining Big Tech’s growth simply may not work. Two decades after the “successful” antitrust case against Microsoft (which escaped from being broken up on appeal), Microsoft’s browser market share increased from 85% in 2000 to more than 90% now. Its market valuation in April 2021 was larger than Canada’s GDPthe world’s 10th-largest economy.
More philosophically, anti-antitrust authors ask whether trustbusting is “really about protecting consumers or merely about expanding the power of government.” In their view, competition will take care of the Big Tech problem. Antitrust represents “the grotesque contradiction of attempting to preserve the freedom of the market by government controlsto preserve the benefits of laissez-faire by abrogating it.” The last point was not written by a fringe author. It was penned by Alan Greenspan, who later served as chair of the Federal Reserve (1987-2006). As the debate rages and the court battles unfold, next time when you start Facebook, can you spare a thought on this debate?
