Archives For big tech

In a recent op-ed, Robert Bork Jr. laments the Biden administration’s drive to jettison the Consumer Welfare Standard that has formed nearly half a century of antitrust jurisprudence. The move can be seen in the near-revolution at the Federal Trade Commission, in the president’s executive order on competition enforcement, and in several of the major antitrust bills currently before Congress.

Bork notes the Competition and Antitrust Law Enforcement Reform Act, introduced by Sen. Amy Klobuchar (D-Minn.), would “outlaw any mergers or acquisitions for the more than 80 large U.S. companies valued over $100 billion.”

Bork is correct that it will be more than 80 companies, but it is likely to be way more. While the Klobuchar bill does not explicitly outlaw such mergers, under certain circumstances, it shifts the burden of proof to the merging parties, who must demonstrate that the benefits of the transaction outweigh the potential risks. Under current law, the burden is on the government to demonstrate the potential costs outweigh the potential benefits.

One of the measure’s specific triggers for this burden-shifting is if the acquiring party has a market capitalization, assets, or annual net revenue of more than $100 billion and seeks a merger or acquisition valued at $50 million or more. About 120 or more U.S. companies satisfy at least one of these conditions. The end of this post provides a list of publicly traded companies, according to Zacks’ stock screener, that would likely be subject to the shift in burden of proof.

If the goal is to go after Big Tech, the Klobuchar bill hits the mark. All of the FAANG companies—Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google)—satisfy one or more of the criteria. So do Microsoft and PayPal.

But even some smaller tech firms will be subject to the shift in burden of proof. Zoom and Square have market caps that would trigger under Klobuchar’s bill and Snap is hovering around $100 billion in market cap. Twitter and eBay, however, are well under any of the thresholds. Likewise, privately owned Advance Communications, owner of Reddit, would also likely fall short of any of the triggers.

Snapchat has a little more than 300 million monthly active users. Twitter and Reddit each have about 330 million monthly active users. Nevertheless, under the Klobuchar bill, Snapchat is presumed to have more market power than either Twitter or Reddit, simply because the market assigns a higher valuation to Snap.

But this bill is about more than Big Tech. Tesla, which sold its first car only 13 years ago, is now considered big enough that it will face the same antitrust scrutiny as the Big 3 automakers. Walmart, Costco, and Kroger would be subject to the shifted burden of proof, while Safeway and Publix would escape such scrutiny. An acquisition by U.S.-based Nike would be put under the microscope, but a similar acquisition by Germany’s Adidas would not fall under the Klobuchar bill’s thresholds.

Tesla accounts for less than 2% of the vehicles sold in the United States. I have no idea what Walmart, Costco, Kroger, or Nike’s market share is, or even what comprises “the” market these companies compete in. What we do know is that the U.S. Department of Justice and Federal Trade Commission excel at narrowly crafting market definitions so that just about any company can be defined as dominant.

So much of the recent interest in antitrust has focused on Big Tech. But even the biggest of Big Tech firms operate in dynamic and competitive markets. None of my four children use Facebook or Twitter. My wife and I don’t use Snapchat. We all use Netflix, but we also use Hulu, Disney+, HBO Max, YouTube, and Amazon Prime Video. None of these services have a monopoly on our eyeballs, our attention, or our pocketbooks.

The antitrust bills currently working their way through Congress abandon the long-standing balancing of pro- versus anti-competitive effects of mergers in favor of a “big is bad” approach. While the Klobuchar bill appears to provide clear guidance on the thresholds triggering a shift in the burden of proof, the arbitrary nature of the thresholds will result in arbitrary application of the burden of proof. If passed, we will soon be faced with a case in which two firms who differ only in market cap, assets, or sales will be subject to very different antitrust scrutiny, resulting in regulatory chaos.

Publicly traded companies with more than $100 billion in market capitalization

3MDanaher Corp.PepsiCo
Abbott LaboratoriesDeere & Co.Pfizer
AbbVieEli Lilly and Co.Philip Morris International
Adobe Inc.ExxonMobilProcter & Gamble
Advanced Micro DevicesFacebook Inc.Qualcomm
Alphabet Inc.General Electric Co.Raytheon Technologies
AmazonGoldman SachsSalesforce
American ExpressHoneywellServiceNow
American TowerIBMSquare Inc.
AmgenIntelStarbucks
Apple Inc.IntuitTarget Corp.
Applied MaterialsIntuitive SurgicalTesla Inc.
AT&TJohnson & JohnsonTexas Instruments
Bank of AmericaJPMorgan ChaseThe Coca-Cola Co.
Berkshire HathawayLockheed MartinThe Estée Lauder Cos.
BlackRockLowe’sThe Home Depot
BoeingMastercardThe Walt Disney Co.
Bristol Myers SquibbMcDonald’sThermo Fisher Scientific
Broadcom Inc.MedtronicT-Mobile US
Caterpillar Inc.Merck & Co.Union Pacific Corp.
Charles Schwab Corp.MicrosoftUnited Parcel Service
Charter CommunicationsMorgan StanleyUnitedHealth Group
Chevron Corp.NetflixVerizon Communications
Cisco SystemsNextEra EnergyVisa Inc.
CitigroupNike Inc.Walmart
ComcastNvidiaWells Fargo
CostcoOracle Corp.Zoom Video Communications
CVS HealthPayPal

Publicly traded companies with more than $100 billion in current assets

Ally FinancialFreddie Mac
American International GroupKeyBank
BNY MellonM&T Bank
Capital OneNorthern Trust
Citizens Financial GroupPNC Financial Services
Fannie MaeRegions Financial Corp.
Fifth Third BankState Street Corp.
First Republic BankTruist Financial
Ford Motor Co.U.S. Bancorp

Publicly traded companies with more than $100 billion in sales

AmerisourceBergenDell Technologies
AnthemGeneral Motors
Cardinal HealthKroger
Centene Corp.McKesson Corp.
CignaWalgreens Boots Alliance

Advocates of legislative action to “reform” antitrust law have already pointed to the U.S. District Court for the District of Columbia’s dismissal of the state attorneys general’s case and the “conditional” dismissal of the Federal Trade Commission’s case against Facebook as evidence that federal antitrust case law is lax and demands correction. In fact, the court’s decisions support the opposite implication. 

The Risks of Antitrust by Anecdote

The failure of a well-resourced federal regulator, and more than 45 state attorney-general offices, to avoid dismissal at an early stage of the litigation testifies to the dangers posed by a conclusory approach toward antitrust enforcement that seeks to unravel acquisitions consummated almost a decade ago without even demonstrating the factual predicates to support consideration of such far-reaching interventions. The dangers to the rule of law are self-evident. Irrespective of one’s views on the appropriate direction of antitrust law, this shortcut approach would substitute prosecutorial fiat, ideological predilection, and popular sentiment for decades of case law and agency guidelines grounded in the rigorous consideration of potential evidence of competitive harm. 

The paucity of empirical support for the exceptional remedial action sought by the FTC is notable. As the district court observed, there was little systematic effort made to define the economically relevant market or provide objective evidence of market power, beyond the assertion that Facebook has a market share of “in excess of 60%.” Remarkably, the denominator behind that 60%-plus assertion is not precisely defined, since the FTC’s brief does not supply any clear metric by which to measure market share. As the court pointed out, this is a nontrivial task in multi-sided environments in which one side of the potentially relevant market delivers services to users at no charge.  

While the point may seem uncontroversial, it is important to re-appreciate why insisting on a rigorous demonstration of market power is critical to preserving a coherent body of law that provides the market with a basis for reasonably anticipating the likelihood of antitrust intervention. At least since the late 1970s, courts have recognized that “big is not always bad” and can often yield cost savings that ultimately redound to consumers’ benefit. That is: firm size and consumer welfare do not stand in inherent opposition. If courts were to abandon safeguards against suits that cannot sufficiently define the relevant market and plausibly show market power, antitrust litigation could easily be used as a tool to punish successful firms that prevail over competitors simply by being more efficient. In other words: antitrust law could become a tool to preserve competitor welfare at the expense of consumer welfare.

The Specter of No-Fault Antitrust Liability

The absence of any specific demonstration of market power suggests deficient lawyering or the inability to gather supporting evidence. Giving the FTC litigation team the benefit of the doubt, the latter becomes the stronger possibility. If that is the case, this implies an effort to persuade courts to adopt a de facto rule of per se illegality for any firm that achieves a certain market share. (The same concept lies behind legislative proposals to bar acquisitions for firms that cross a certain revenue or market capitalization threshold.) Effectively, any firm that reached a certain size would operate under the presumption that it has market power and has secured or maintained such power due to anticompetitive practices, rather than business prowess. This would effectively convert leading digital platforms into quasi-public utilities subject to continuous regulatory intervention. Such an approach runs counter to antitrust law’s mission to preserve, rather than displace, private ordering by market forces.  

Even at the high-water point of post-World War II antitrust zealotry (a period that ultimately ended in economic malaise), proposals to adopt a rule of no-fault liability for alleged monopolization were rejected. This was for good reason. Any such rule would likely injure consumers by precluding them from enjoying the cost savings that result from the “sweet spot” scenario in which the scale and scope economies of large firms are combined with sufficiently competitive conditions to yield reduced prices and increased convenience for consumers. Additionally, any such rule would eliminate incumbents’ incentives to work harder to offer consumers reduced prices and increased convenience, since any market share preserved or acquired as a result would simply invite antitrust scrutiny as a reward.

Remembering Why Market Power Matters

To be clear, this is not to say that “Big Tech” does not deserve close antitrust scrutiny, does not wield market power in certain segments, or has not potentially engaged in anticompetitive practices.  The fundamental point is that assertions of market power and anticompetitive conduct must be demonstrated, rather than being assumed or “proved” based largely on suggestive anecdotes.  

Perhaps market power will be shown sufficiently in Facebook’s case if the FTC elects to respond to the court’s invitation to resubmit its brief with a plausible definition of the relevant market and indication of market power at this stage of the litigation. If that threshold is satisfied, then thorough consideration of the allegedly anticompetitive effect of Facebook’s WhatsApp and Instagram acquisitions may be merited. However, given the policy interest in preserving the market’s confidence in relying on the merger-review process under the Hart-Scott-Rodino Act, the burden of proof on the government should be appropriately enhanced to reflect the significant time that has elapsed since regulatory decisions not to intervene in those transactions.  

It would once have seemed mundane to reiterate that market power must be reasonably demonstrated to support a monopolization claim that could lead to a major divestiture remedy. Given the populist thinking that now leads much of the legislative and regulatory discussion on antitrust policy, it is imperative to reiterate the rationale behind this elementary principle. 

This principle reflects the fact that, outside collusion scenarios, antitrust law is typically engaged in a complex exercise to balance the advantages of scale against the risks of anticompetitive conduct. At its best, antitrust law weighs competing facts in a good faith effort to assess the net competitive harm posed by a particular practice. While this exercise can be challenging in digital markets that naturally converge upon a handful of leading platforms or multi-dimensional markets that can have offsetting pro- and anti-competitive effects, these are not reasons to treat such an exercise as an anachronistic nuisance. Antitrust cases are inherently challenging and proposed reforms to make them easier to win are likely to endanger, rather than preserve, competitive markets.

PHOTO: C-Span

Lina Khan’s appointment as chair of the Federal Trade Commission (FTC) is a remarkable accomplishment. At 32 years old, she is the youngest chair ever. Her longstanding criticisms of the Consumer Welfare Standard and alignment with the neo-Brandeisean school of thought make her appointment a significant achievement for proponents of those viewpoints. 

Her appointment also comes as House Democrats are preparing to mark up five bills designed to regulate Big Tech and, in the process, vastly expand the FTC’s powers. This expansion may combine with Khan’s appointment in ways that lawmakers considering the bills have not yet considered.

This is a critical time for the FTC. It has lost a number of high-profile lawsuits and is preparing to expand its rulemaking powers to regulate things like employment contracts and businesses’ use of data. Khan has also argued in favor of additional rulemaking powers around “unfair methods of competition.”

As things stand, the FTC under Khan’s leadership is likely to push for more extensive regulatory powers, akin to those held by the Federal Communications Commission (FCC). But these expansions would be trivial compared to what is proposed by many of the bills currently being prepared for a June 23 mark-up in the House Judiciary Committee. 

The flagship bill—Rep. David Cicilline’s (D-R.I.) American Innovation and Choice Online Act—is described as a platform “non-discrimination” bill. I have already discussed what the real-world effects of this bill would likely be. Briefly, it would restrict platforms’ ability to offer richer, more integrated services at all, since those integrations could be challenged as “discrimination” at the cost of would-be competitors’ offerings. Things like free shipping on Amazon Prime, pre-installed apps on iPhones, or even including links to Gmail and Google Calendar at the top of a Google Search page could be precluded under the bill’s terms; in each case, there is a potential competitor being undermined. 

In fact, the bill’s scope is so broad that some have argued that the FTC simply would not challenge “innocuous self-preferencing” like, say, Apple pre-installing Apple Music on iPhones. Economist Hal Singer has defended the proposals on the grounds that, “Due to limited resources, not all platform integration will be challenged.” 

But this shifts the focus to the FTC itself, and implies that it would have potentially enormous discretionary power under these proposals to enforce the law selectively. 

Companies found guilty of breaching the bill’s terms would be liable for civil penalties of up to 15 percent of annual U.S. revenue, a potentially significant sum. And though the Supreme Court recently ruled unanimously against the FTC’s powers to levy civil fines unilaterally—which the FTC opposed vociferously, and may get restored by other means—there are two scenarios through which it could end up getting extraordinarily extensive control over the platforms covered by the bill.

The first course is through selective enforcement. What Singer above describes as a positive—the fact that enforcers would just let “benign” violations of the law be—would mean that the FTC itself would have tremendous scope to choose which cases it brings, and might do so for idiosyncratic, politicized reasons.

This approach is common in countries with weak rule of law. Anti-corruption laws are frequently used to punish opponents of the regime in China, who probably are also corrupt, but are prosecuted because they have challenged the regime in some way. Hong Kong’s National Security law has also been used to target peaceful protestors and critical media thanks to its vague and overly broad drafting. 

Obviously, that’s far more sinister than what we’re talking about here. But these examples highlight how excessively broad laws applied at the enforcer’s discretion give broad powers to the enforcer to penalize defendants for other, unrelated things. Or, to quote Jay-Z: “Am I under arrest or should I guess some more? / ‘Well, you was doing 55 in a 54.’

The second path would be to use these powers as leverage to get broad consent decrees to govern the conduct of covered platforms. These occur when a lawsuit is settled, with the defendant company agreeing to change its business practices under supervision of the plaintiff agency (in this case, the FTC). The Cambridge Analytica lawsuit ended this way, with Facebook agreeing to change its data-sharing practices under the supervision of the FTC. 

This path would mean the FTC creating bespoke, open-ended regulation for each covered platform. Like the first path, this could create significant scope for discretionary decision-making by the FTC and potentially allow FTC officials to impose their own, non-economic goals on these firms. And it would require costly monitoring of each firm subject to bespoke regulation to ensure that no breaches of that regulation occurred.

Khan, as a critic of the Consumer Welfare Standard, believes that antitrust ought to be used to pursue non-economic objectives, including “the dispersion of political and economic control.” She, and the FTC under her, may wish to use this discretionary power to prosecute firms that she feels are hurting society for unrelated reasons, such as because of political stances they have (or have not) taken.

Khan’s fellow commissioner, Rebecca Kelly Slaughter, has argued that antitrust should be “antiracist”; that “as long as Black-owned businesses and Black consumers are systematically underrepresented and disadvantaged, we know our markets are not fair”; and that the FTC should consider using its existing rulemaking powers to address racist practices. These may be desirable goals, but their application would require contentious value judgements that lawmakers may not want the FTC to make.

Khan herself has been less explicit about the goals she has in mind, but has given some hints. In her essay “The Ideological Roots of America’s Market Power Problem”, Khan highlights approvingly former Associate Justice William O. Douglas’s account of:

“economic power as inextricably political. Power in industry is the power to steer outcomes. It grants outsized control to a few, subjecting the public to unaccountable private power—and thereby threatening democratic order. The account also offers a positive vision of how economic power should be organized (decentralized and dispersed), a recognition that forms of economic power are not inevitable and instead can be restructured.” [italics added]

Though I have focused on Cicilline’s flagship bill, others grant significant new powers to the FTC, as well. The data portability and interoperability bill doesn’t actually define what “data” is; it leaves it to the FTC to “define the term ‘data’ for the purpose of implementing and enforcing this Act.” And, as I’ve written elsewhere, data interoperability needs significant ongoing regulatory oversight to work at all, a responsibility that this bill also hands to the FTC. Even a move as apparently narrow as data portability will involve a significant expansion of the FTC’s powers and give it a greater role as an ongoing economic regulator.

It is concerning enough that this legislative package would prohibit conduct that is good for consumers, and that actually increases the competition faced by Big Tech firms. Congress should understand that it also gives extensive discretionary powers to an agency intent on using them to pursue broad, political goals. If Khan’s appointment as chair was a surprise, what her FTC does with the new powers given to her by Congress should not be.

[TOTM: The following is part of a symposium by TOTM guests and authors marking the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario.” The entire series of posts is available here.

This post is authored by Peter Klein (Professor of Entrepreneurship, Baylor University).
]

Nicolas Petit’s insightful and provocative book ends with a chapter on “Big Tech’s Novel Harms,” asking whether antitrust is the appropriate remedy for popular (and academic) concerns about privacy, fake news, and hate speech. In each case, he asks whether the alleged harms are caused by a lack of competition among platforms – which could support a case for breaking them up – or by the nature of the underlying technologies and business models. He concludes that these problems are not alleviated (and may even be exacerbated) by applying competition policy and suggests that regulation, not antitrust, is the more appropriate tool for protecting privacy and truth.

What kind of regulation? Treating digital platforms like public utilities won’t work, Petit argues, because the product is multidimensional and competition takes place on multiple margins (the larger theme of the book): “there is a plausible chance that increased competition in digital markets will lead to a race to the bottom, in which price competition (e.g., on ad markets) will be the winner, and non-price competition (e.g., on privacy) will be the loser.” Utilities regulation also provides incentives for rent-seeking by less efficient rivals. Retail regulation, aimed at protecting small firms, may end up helping incumbents instead by raising rivals’ costs.

Petit concludes that consumer protection regulation (such as Europe’s GDPR) is a better tool for guarding privacy and truth, though it poses challenges as well. More generally, he highlights the vast gulf between the economic analysis of privacy and speech and the increasingly loud calls for breaking up the big tech platforms, which would do little to alleviate these problems.

As in the rest of the book, Petit’s treatment of these complex issues is thoughtful, careful, and systematic. I have more fundamental problems with conventional antitrust remedies and think that consumer protection is problematic when applied to data services (even more so than in other cases). Inspired by this chapter, let me offer some additional thoughts on privacy and the nature of data which speak to regulation of digital platforms and services.

First, privacy, like information, is not an economic good. Just as we don’t buy and sell information per se but information goods (books, movies, communications infrastructure, consultants, training programs, etc.), we likewise don’t produce and consume privacy but what we might call privacy goods: sunglasses, disguises, locks, window shades, land, fences and, in the digital realm, encryption software, cookie blockers, data scramblers, and so on.

Privacy goods and services can be analyzed just like other economic goods. Entrepreneurs offer bundled services that come with varying degrees of privacy protection: encrypted or regular emails, chats, voice and video calls; browsers that block cookies or don’t; social media sites, search engines, etc. that store information or not; and so on. Most consumers seem unwilling to sacrifice other functionality for increased privacy, as suggested by the small market shares held by DuckDuckGo, Telegram, Tor, and the like suggest. Moreover, while privacy per se is appealing, there are huge efficiency gains from matching on buyer and seller characteristics on sharing platforms, digital marketplaces, and dating sites. There are also substantial cost savings from electronic storage and sharing of private information such as medical records and credit histories. And there is little evidence of sellers exploiting such information to engage in price discrimination. (Aquisti, Taylor, and Wagman, 2016 provide a detailed discussion of many of these issues.)

Regulating markets for privacy goods via bans on third-party access to customer data, mandatory data portability, and stiff penalties for data breaches is tricky. Such policies could make digital services more valuable, but it is not obvious why the market cannot figure this out. If consumers are willing to pay for additional privacy, entrepreneurs will be eager to supply it. Of course, bans on third-party access and other forms of sharing would require a fundamental change in the ad-based revenue model that makes free or low-cost access possible, so platforms would have to devise other means of monetizing their services. (Again, many platforms already offer ad-free subscriptions, so it’s unclear why those who prefer ad-based, free usage should be prevented from doing so.)

What about the idea that I own “my” data and that, therefore, I should have full control over how it is used? Some of the utilities-based regulatory models treat platforms as neutral storage places or conduits for information belonging to users. Proposals for data portability suggest that users of technology platforms should be able to move their data from platform to platform, downloading all their personal information from one platform then uploading it to another, then enjoying the same functionality on the new platform as longtime users.

Of course, there are substantial technical obstacles to such proposals. Data would have to be stored in a universal format – not just the text or media users upload to platforms, but also records of all interactions (likes, shares, comments), the search and usage patterns of users, and any other data generated as a result of the user’s actions and interactions with other users, advertisers, and the platform itself. It is unlikely that any universal format could capture this information in a form that could be transferred from one platform to another without a substantial loss of functionality, particularly for platforms that use algorithms to determine how information is presented to users based on past use. (The extreme case is a platform like TikTok which uses usage patterns as a substitute for follows, likes, and shares, portability to construct a “feed.”)

Moreover, as each platform sets its own rules for what information is allowed, the import functionality would have to screen the data for information allowed on the original platform but not the new (and the reverse would be impossible – a user switching from Twitter to Gab, for instance, would have no way to add the content that would have been permitted on Gab but was never created in the first place because it would have violated Twitter rules).

There is a deeper, philosophical issue at stake, however. Portability and neutrality proposals take for granted that users own “their” data. Users create data, either by themselves or with their friends and contacts, and the platform stores and displays the data, just as a safe deposit box holds documents or jewelry and a display case shows of an art collection. I should be able to remove my items from the safe deposit box and take them home or to another bank, and a “neutral” display case operator should not prevent me from showing off my preferred art (perhaps subject to some general rules about obscenity or harmful personal information).

These analogies do not hold for user-generated information on internet platforms, however. “My data” is a record of all my interactions with platforms, with other users on those platforms, with contractual partners of those platforms, and so on. It is co-created by these interactions. I don’t own these records any more than I “own” the fact that someone saw me in the grocery store yesterday buying apples. Of course, if I have a contract with the grocer that says he will keep my purchase records private, and he shares them with someone else, then I can sue him for breach of contract. But this isn’t theft. He hasn’t “stolen” anything; there is nothing for him to steal. If a grocer — or an owner of a tech platform — wants to attract my business by monetizing the records of our interactions and giving me a cut, he should go for it. I still might prefer another store. In any case, I don’t have the legal right to demand this revenue stream.

Likewise, “privacy” refers to what other people know about me – it is knowledge in their heads, not mine. Information isn’t property. If I know something about you, that knowledge is in my head; it’s not something I took from you. Of course, if I obtained or used that info in violation of a prior agreement, then I’m guilty of breach, and I use that information to threaten or harass you, I may be guilty of other crimes. But the popular idea that tech companies are stealing and profiting from something that’s “ours” isn’t right.

The concept of co-creation is important, because these digital records, like other co-created assets, can be more or less relationship specific. The late Oliver Williamson devoted his career to exploring the rich variety of contractual relationships devised by market participants to solve complex contracting problems, particularly in the face of asset specificity. Relationship-specific investments can be difficult for trading parties to manage, but they typically create more value. A legal regime in which only general-purpose, easily redeployable technologies were permitted would alleviate the holdup problem, but at the cost of a huge loss in efficiency. Likewise, a world in which all digital records must be fully portable reduces switching costs, but results in technologies for creating, storing, and sharing information that are less valuable. Why would platform operators invest in efficiency improvements if they cannot capture some of that value by means of proprietary formats, interfaces, sharing rules, and other arrangements?  

In short, we should not be quick to assume “market failure” in the market for privacy goods (or “true” news, whatever that is). Entrepreneurs operating in a competitive environment – not the static, partial-equilibrium notion of competition from intermediate micro texts but the rich, dynamic, complex, and multimarket kind of competition described in Petit’s book – can provide the levels of privacy and truthiness that consumers prefer.

[TOTM: The following is part of a symposium by TOTM guests and authors marking the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario.” The entire series of posts is available here.

This post is authored by Shane Greenstein (Professor of Business Administration, Harvard Business School).
]

In his book, Nicolas Petit approaches antitrust issues by analyzing their economic foundations, and he aspires to bridge gaps between those foundations and the common points of view. In light of the divisiveness of today’s debates, I appreciate Petit’s calm and deliberate view of antitrust, and I respect his clear and engaging prose.

I spent a lot of time with this topic when writing a book (How the Internet Became Commercial, 2015, Princeton Press). If I have something unique to add to a review of Petit’s book, it comes from the role Microsoft played in the events in my book.

Many commentators have speculated on what precise charges could be brought against Facebook, Google/Alphabet, Apple, and Amazon. For the sake of simplicity, let’s call these the “big four.” While I have no special insight to bring to such speculation, for this post I can do something different, and look forward by looking back. For the time being, Microsoft has been spared scrutiny by contemporary political actors. (It seems safe to presume Microsoft’s managers prefer to be left out.) While it is tempting to focus on why this has happened, let’s focus on a related issue: What shadow did Microsoft’s trials cast on the antitrust issues facing the big four?

Two types of lessons emerged from Microsoft’s trials, and both tend to be less appreciated by economists. One set of lessons emerged from the media flood of the flotsam and jetsam of sensationalistic factoids and sound bites, drawn from Congressional and courtroom testimony. That yielded lessons about managing sound and fury – i.e., mostly about reducing the cringe-worthy quotes from CEOs and trial witnesses.

Another set of lessons pertained to the role and limits of economic reasoning. Many decision makers reasoned by analogy and metaphor. That is especially so for lawyers and executives. These metaphors do not make economic reasoning wrong, but they do tend to shape how an antitrust question takes center stage with a judge, as well as in the court of public opinion. These metaphors also influence the stories a CEO tells to employees.

If you asked me to forecast how things will go for the big four, based on what I learned from studying Microsoft’s trials, I forecast that the outcome depends on which metaphor and analogy gets the upper hand.

In that sense, I want to argue that Microsoft’s experience depended on “the fox and shepherd problem.” When is a platform leader better thought of as a shepherd, helping partners achieve a healthy outcome, or as a fox in charge of a henhouse, ready to sacrifice a partner for self-serving purposes? I forecast the same metaphors will shape experience of the big four.

Gaps and analysis

The fox-shepherd problem never shows up when a platform leader is young and its platform is small. As the platform reaches bigger scale, however, the problem becomes more salient. Conflicts of interests emerge and focus attention on platform leadership.

Petit frames these issues within a Schumpeterian vision. In this view, firms compete for dominant positions over time, potentially with one dominant firm replacing another. Potential competition has a salutary effect if established firms perceive a threat from the future shadow of such competitors, motivating innovation. In this view, antitrust’s role might be characterized as “keeping markets open so there is pressure on the dominant firm from potential competition.”

In the Microsoft trial economists framed the Schumpeterian tradeoff in the vocabulary of economics. Firms who supply complements at one point could become suppliers of substitutes at a later point if they are allowed to. In other words, platform leaders today support complements that enhance the value of the platform, while also having the motive and ability to discourage those same business partners from developing services that substitute for the platform’s services, which could reduce the platform’s value. Seen through this lens, platform leaders inherently face a conflict of interest, and antitrust law should intervene if platform leaders could place excessive limitations on existing business partners.

This economic framing is not wrong. Rather, it is necessary, but not sufficient. If I take a sober view of events in the Microsoft trial, I am not convinced the economics alone persuaded the judge in Microsoft’s case, or, for that matter, the public.

As judges sort through the endless detail of contracting provisions, they need a broad perspective, one that sharpens their focus on a key question. One central question in particular inhabits a lot of a judge’s mindshare: how did the platform leader use its discretion, and for what purposes? In case it is not obvious, shepherds deserve a lot of discretion, while only a fool gives a fox much license.

Before the trial, when it initially faced this question from reporters and Congress, Microsoft tried to dismiss the discussion altogether. Their representatives argued that high technology differs from every other market in its speed and productivity, and, therefore, ought to be thought of as incomparable to other antitrust examples. This reflected the high tech elite’s view of their own exceptionalism.

Reporters dutifully restated this argument, and, long story short, it did not get far with the public once the sensationalism started making headlines, and it especially did not get far with the trial judge. To be fair, if you watched recent congressional testimony, it appears as if the lawyers for the big four instructed their CEOs not to try it this approach this time around.

Origins

Well before lawyers and advocates exaggerate claims, the perspective of both sides usually have some merit, and usually the twain do not meet. Most executives tend to remember every detail behind growth, and know the risks confronted and overcome, and usually are reluctant to give up something that works for their interests, and sometimes these interests can be narrowly defined. In contrast, many partners will know examples of a rule that hindered them, and point to complaints that executives ignored, and aspire to have rules changed, and, again, their interests tend to be narrow.

Consider the quality-control process today for iPhone apps as an example. The merits and absurdity of some of Apples conduct get a lot of attention in online forums, especially the 30% take for Apple. Apple can reasonably claim the present set of rules work well overall, and only emerged after considerable experimentation, and today they seek to protect all who benefit from the entire system, like a shepherd. It is no surprise however, that some partners accuse Apple of tweaking rules to their own benefit, and using the process to further Apple’s ambitions at the expense of the partner’s, like a fox in a henhouse. So it goes.

More generally, based on publically available information, all of the big four already face this debate. Self-serving behavior shows up in different guise in different parts of the big four’s business, but it is always there. As noted, Apple’s apps compete with the apps of others, so it has incentives to shape distribution of other apps. Amazon’s products compete with some products coming from its third—party sellers, and it too faces mixed incentives. Google’s services compete with online services who also advertise on their search engine, and they too face issues over their charges for listing on the Play store. Facebook faces an additional issues, because it has bought firms that were trying to grow their own platforms to compete with Facebook.

Look, those four each contain rather different businesses in their details, which merits some caution in making a sweeping characterization. My only point: the question about self-serving behavior arises in each instance. That frames a fox-shepherd problem for prosecutors in each case.

Lessons from prior experience

Circling back to lessons of the past for antitrust today, the Shepherd-Fox problem was one of the deeper sources of miscommunication leading up to the Microsoft trial. In the late 1990s Microsoft could reasonably claim to be a shepherd for all its platform’s partners, and it could reasonably claim to have improved the platform in ways that benefited partners. Moreover, for years some of the industry gossip about their behavior stressed misinformed nonsense. Accordingly, Microsoft’s executives had learned to trust their own judgment and to mistrust the complaints of outsiders. Right in line with that mistrust, many employees and executives took umbrage to being characterized as a fox in a henhouse, dismissing the accusations out of hand.

Those habits-of-mind poorly positioned the firm for a court case. As any observer of the trial knowns, When prosecutors came looking, they found lots of examples that looked like fox-like behavior. Onerous contract restrictions and cumbersome processes for business partners produced plenty of bad optics in court, and fueled the prosecution’s case that the platform had become too self-serving at the expense of competitive processes. Prosecutors had plenty to work with when it came time to prove motive, intent, and ability to misuse discretion. 

What is the lesson for the big four? Ask an executive in technology today, and sometimes you will hear the following: As long as a platform’s actions can be construed as friendly to customers, the platform leader will be off the hook. That is not wrong lessons, but it is an incomplete one. Looking with hindsight and foresight, that perspective seems too sanguine about the prospects for the big four. Microsoft had done plenty for its customers, but so what? There was plenty of evidence of acting like a fox in a hen-house. The bigger lesson is this: all it took were a few bad examples to paint a picture of a pattern, and every firm has such examples.

Do not get me wrong. I am not saying a fox and hen-house analogy is fair or unfair to platform leaders. Rather, I am saying that economists like to think the economic trade-off between the interests of platform leaders, platform partners, and platform customers emerge from some grand policy compromise. That is not how prosecutors think, nor how judges decide. In the Microsoft case there was no such grand consideration. The economic framing of the case only went so far. As it was, the decision was vulnerable to metaphor, shrewdly applied and convincingly argued. Done persuasively, with enough examples of selfish behavior, excuses about “helping customers” came across as empty.

Policy

Some advocates argue, somewhat philosophically, that platforms deserve discretion, and governments are bound to err once they intervene. I have sympathy with that point of view, but only up to a point. Below are two examples from outside antitrust where government routinely do not give the big four a blank check.

First, when it started selling ads, Google banned ads for cigarettes, porn and alcohol, and it downgraded in its quality score for websites that used deceptive means to attract users. That helped the service foster trust with new users, enabling it to grow. After it became bigger should Google have continued to have unqualified discretion to shepherd the entire ad system? Nobody thinks so. A while ago the Federal Trade Commission decided to investigate deceptive online advertising, just as it investigates deceptive advertising in other media. It is not a big philosophical step to next ask whether Google should have unfettered discretion to structure the ad business, search process, and related e-commerce to its own benefit.

Here is another example, this one about Facebook. Over the years Facebook cycled through a number of rules for sharing information with business partners, generally taking a “relaxed” attitude enforcing those policies. Few observers cared when Facebook was small, but many governments started to care after Facebook grew to billions of users. Facebook’s lax monitoring did not line up with the preferences of many governments. It should not come as a surprise now that many governments want to regulate Facebook’s handling of data. Like it or not, this question lies squarely within the domain of government privacy policy. Again, the next step is small. Why should other parts of its business remain solely in Facebook’s discretion, like its ability to buy other businesses?

This gets us to the other legacy of the Microsoft case: As we think about future policy dilemmas, are there a general set of criteria for the antitrust issues facing all four firms? Veterans of court cases will point out that every court case is its own circus. Just because Microsoft failed to be persuasive in its day does not imply any of the big four will be unpersuasive.

Looking back on the Microsoft trial, it did not articulate a general set of principles about acceptable or excusable self-serving behavior from a platform leader. It did not settle what criteria best determine when a court should consider a platform leader’s behavior closer to that of a shepherd or a fox. The appropriate general criteria remains unclear.

[TOTM: The following is part of a symposium by TOTM guests and authors marking the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario.” The entire series of posts is available here.

This post is authored by Richard N. Langlois
(Professor of Economics, University of Connecticut).]

Market share has long been the talisman of antitrust economics.  Once we properly define what “the product” is, all we have to do is look at shares in the relevant market.  In such an exercise, today’s high-tech firms come off badly.  Each of them has a large share of the market for some “product.” What I appreciate about Nicolas Petit’s notion of “moligopoly” is that it recognizes that genuine competition is a far more complex and interesting phenomenon, one that goes beyond the category of “the product.”

In his chapter 4, Petit lays out how this works with six of today’s large high-tech companies, adding Netflix to the usual Big Five of Amazon, Apple, Facebook, Google, and Microsoft.  If I understand properly, what he means by “moligopoly” is that these large firms have their hands in many different relevant markets.  Because they seem to be selling different “products,” they don’t seem to be competing with one another.  Yet, in a fundamental sense, they are very much competing with one another, and perhaps with firms that do not yet exist.  

In this view, diversification is at the heart of competition.  Indeed, Petit wonders at one point whether we are in a new era of “conglomeralism.”  I would argue that the diversified high-tech firms we see today are actually very unlike the conglomerates of the late twentieth century.  In my view, the earlier conglomerates were not equilibrium phenomena but rather short-lived vehicles for the radical restructuring of the American economy in the post- Bretton Woods era of globalization.  A defining characteristic of those firms was that their diversification was unrelated, not just in terms of the SIC codes of their products but also in terms of their underlying capabilities.  If we look only at the products on the demand side, today’s high-tech firms might also seem to reflect unrelated diversification.  In fact, however, unlike in the twentieth-century conglomerates, the activities of present-day high-tech firms are connected on the supply side by a common set of capabilities involving the deployment of digital technology. 

Thus the boundaries of markets can shift and morph unexpectedly.  Enterprises that may seem entirely different actually harbor the potential to invade one other’s territory (or invade new territory – “competing against non-consumption”).  What Amazon can do, Google can do; and so can Microsoft.  The arena is competitive not because firms have a small share of relevant markets but because all of them sit beneath four or five damocletian swords, suspended by the thinnest of horsehairs.  No wonder the executives of high-tech firms sound paranoid.

Petit speculates that today’s high-tech companies have diversified (among other reasons) because of complementarities.  That may be part of the story.  But as Carliss Baldwin argues (and as Petit mentions in passing), we can think about the investments high-tech firms seem to be making as options – experiments that may or may not pay off.  The more uncertain the environment, the more valuable it is to have many diverse options.  A decade or so after the breakup of AT&T, the “baby Bells” were buying into landline, cellular, cable, satellite, and many other things, not because, as many thought at the time, that these were complementary, but because no one had any idea what would be important in the future (including whether there would be any complementarities).  As uncertainty resolved, these lines of business became more specialized, and the babies unbundled.  (As I write, AT&T, the baby Bell that snagged the original company name, is probably about to sell off DirectTV at a loss.)  From this perspective, the high degree of diversification we observe today implies not control of markets but the opposite – existential uncertainty about the future.

I wonder whether this kind of competition is unique to the age of the Internet.  There is an entire genre of business-school case built around an epiphany of the form: “we thought we were in the X business, but we were really in the Y business all along!”  I have recently read (listened to, technically) Marc Levinson’s wonderful history of containerized shipping.  Here the real competition occurred across modes of transport, not within existing well-defined markets.  The innovators came to realize that they were in the logistics business, not in the trucking business or the railroad business or the ocean-shipping business.  (Some of the most interesting parts of the story were about how entrepreneurship happens in a heavily regulated environment.  At one point early in the story, Malcolm McLean, the most important of these entrepreneurs, had to buy up other trucking firms just to obtain the ICC permits necessary to redesign routes efficiently.)  Of course, containerized shipping is also a modular system that some economists have accused of being a general-purpose technology like the Internet.

[TOTM: The following is part of a symposium by TOTM guests and authors marking the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario.” The entire series of posts is available here.

This post is authored by Doug Melamed (Professor of the Practice of Law, Stanford law School).
]

The big digital platforms make people uneasy.  Part of the unease is no doubt attributable to widespread populist concerns about large and powerful business entities.  Platforms like Facebook and Google in particular cause unease because they affect sensitive issues of communications, community, and politics.  But the platforms also make people uneasy because they seem boundless – enduring monopolies protected by ever-increasing scale and network economies, and growing monopolies aided by scope economies that enable them to conquer complementary markets.  They provoke a discussion about whether antitrust law is sufficient for the challenge.

Nicolas Petit’s Big Tech and the Digital Economy: The Moligopoly Scenario provides an insightful and valuable antidote to this unease.  While neither Panglossian nor comprehensive, Petit’s analysis persuasively argues that some of the concerns about the platforms are misguided or at least overstated.  As Petit sees it, the platforms are not so much monopolies in discrete markets – search, social networking, online commerce, and so on – as “multibusiness firms with business units in partly overlapping markets” that are engaged in a “dynamic oligopoly game” that might be “the socially optimal industry structure.”  Petit suggests that we should “abandon or at least radically alter traditional antitrust principles,” which are aimed at preserving “rivalry,” and “adapt to the specific non-rival economics of digital markets.”  In other words, the law should not try to diminish the platforms’ unique dominance in their individual sectors, which have already tipped to a winner-take-all (or most) state and in which protecting rivalry is not “socially beneficial.”  Instead, the law should encourage reductions of output in tipped markets in which the dominant firm “extracts a monopoly rent” in order to encourage rivalry in untipped markets. 

Petit’s analysis rests on the distinction between “tipped markets,” in which “tech firms with observed monopoly positions can take full advantage of their market power,” and “untipped markets,” which are “characterized by entry, instability and uncertainty.”  Notably, however, he does not expect “dispositive findings” as to whether a market is tipped or untipped.  The idea is to define markets, not just by “structural” factors like rival goods and services, market shares and entry barriers, but also by considering “uncertainty” and “pressure for change.”

Not surprisingly, given Petit’s training and work as a European scholar, his discussion of “antitrust in moligopoly markets” includes prescriptions that seem to one schooled in U.S. antitrust law to be a form of regulation that goes beyond proscribing unlawful conduct.  Petit’s principal concern is with reducing monopoly rents available to digital platforms.  He rejects direct reduction of rents by price regulation as antithetical to antitrust’s DNA and proposes instead indirect reduction of rents by permitting users on the inelastic side of a platform (the side from which the platform gains most of its revenues) to collaborate in order to gain countervailing market power and by restricting the platforms’ use of vertical restraints to limit user bypass. 

He would create a presumption against all horizontal mergers by dominant platforms in order to “prevent marginal increases of the output share on which the firms take a monopoly rent” and would avoid the risk of defining markets narrowly and thus failing to recognize that platforms are conglomerates that provide actual or potential competition in multiple partially overlapping commercial segments. By contrast, Petit would restrict the platforms’ entry into untipped markets only in “exceptional circumstances.”  For this, Petit suggests four inquiries: whether leveraging of network effects is involved; whether platform entry deters or forecloses entry by others; whether entry by others pressures the monopoly rents; and whether entry into the untipped market is intended to deter entry by others or is a long-term commitment.

One might question the proposition, which is central to much of Petit’s argument, that reducing monopoly rents in tipped markets will increase the platforms’ incentives to enter untipped markets.  Entry into untipped markets is likely to depend more on expected returns in the untipped market, the cost of capital, and constraints on managerial bandwidth than on expected returns in the tipped market.  But the more important issue, at least from the perspective of competition law, is whether – even assuming the correctness of all aspects of Petit’s economic analysis — the kind of categorical regulatory intervention proposed by Petit is superior to a law enforcement regime that proscribes only anticompetitive conduct that increases or threatens to increase market power.  Under U.S. law, anticompetitive conduct is conduct that tends to diminish the competitive efficacy of rivals and does not sufficiently enhance economic welfare by reducing costs, increasing product quality, or reducing above-cost prices.

If there were no concerns about the ability of legal institutions to know and understand the facts, a law enforcement regime would seem clearly superior.  Consider, for example, Petit’s recommendation that entry by a platform monopoly into untipped markets should be restricted only when network effects are involved and after taking into account whether the entry tends to protect the tipped market monopoly and whether it reflects a long-term commitment.  Petit’s proposed inquiries might make good sense as a way of understanding as a general matter whether market extension by a dominant platform is likely to be problematic.  But it is hard to see how economic welfare is promoted by permitting a platform to enter an adjacent market (e.g., Amazon entering a complementary product market) by predatory pricing or by otherwise unprofitable self-preferencing, even if the entry is intended to be permanent and does not protect the platform monopoly. 

Similarly, consider the proposed presumption against horizontal mergers.  That might not be a good idea if there is a small (10%) chance that the acquired firm would otherwise endure and modestly reduce the platform’s monopoly rents and an equal or even smaller chance that the acquisition will enable the platform, by taking advantage of economies of scope and asset complementarities, to build from the acquired firm an improved business that is much more valuable to consumers.  In that case, the expected value of the merger in welfare terms might be very positive.  Similarly, Petit would permit acquisitions by a platform of firms outside the tipped market as long as the platform has the ability and incentive to grow the target.  But the growth path of the target is not set in stone.  The platform might use it as a constrained complement, while an unaffiliated owner might build it into something both more valuable to consumers and threatening to the platform.  Maybe one of these stories describes Facebook’s acquisition of Instagram.

The prototypical anticompetitive horizontal merger story is one in which actual or potential competitors agree to share the monopoly rents that would be dissipated by competition between them. That story is confounded by communications that seem like threats, which imply a story of exclusion rather than collusion.  Petit refers to one such story.  But the threat story can be misleading.  Suppose, for example, that Platform sees Startup introduce a new business concept and studies whether it could profitably emulate Startup.  Suppose further that Platform concludes that, because of scale and scope economies available to it, it could develop such a business and come to dominate the market for a cost of $100 million acting alone or $25 million if it can acquire Startup and take advantage of its existing expertise, intellectual property, and personnel.  In that case, Platform might explain to Startup the reality that Platform is going to take the new market either way and propose to buy Startup for $50 million (thus offering Startup two-thirds of the gains from trade).  Startup might refuse, perhaps out of vanity or greed, in which case Platform as promised might enter aggressively and, without engaging in predatory or other anticompetitive conduct, drive Startup from the market.  To an omniscient law enforcement regime, there should be no antitrust violation from either an acquisition or the aggressive competition.  Either way, the more efficient provider prevails so the optimum outcome is realized in the new market.  The merger would have been more efficient because it would have avoided wasteful duplication of startup costs, and the merger proposal (later characterized as a threat) was thus a benign, even procompetitive, invitation to collude.  It would be a different story of course if Platform could overcome Startup’s first mover advantage only by engaging in anticompetitive conduct.

The problem is that antitrust decision makers often cannot understand all the facts.  Take the threat story, for example.  If Startup acquiesces and accepts the $50 million offer, the decision maker will have to determine whether Platform could have driven Startup from the market without engaging in predatory or anticompetitive conduct and, if not, whether absent the merger the parties would have competed against one another.  In other situations, decision makers are asked to determine whether the conduct at issue would be more likely than the but-for world to promote innovation or other, similarly elusive matters.

U.S. antitrust law accommodates its unavoidable uncertainty by various default rules and practices.  Some, like per se rules and the controversial Philadelphia National Bank presumption, might on occasion prohibit conduct that would actually have been benign or even procompetitive.  Most, however, insulate from antitrust liability conduct that might actually be anticompetitive.  These include rules applicable to predatory pricing, refusals to deal, two-sided markets, and various matters involving patents.  Perhaps more important are proof requirements in general.  U.S. antitrust law is based on the largely unexamined notion that false positives are worse than false negatives and thus, for the most part, puts the burden of uncertainty on the plaintiff.

Petit is proposing, in effect, an alternative approach for the digital platforms.  This approach would not just proscribe anticompetitive conduct.  It would, instead, apply to specific firms special rules that are intended to promote a desired outcome, the reduction in monopoly rents in tipped digital markets.  So, one question suggested by Petit’s provocative study is whether the inevitable uncertainty surrounding issues of platform competition are best addressed by the kinds of categorical rules Petit proposes or by case-by-case application of abstract legal principles.  Put differently, assuming that economic welfare is the objective, what is the best way to minimize error costs?

Broadly speaking, there are two kinds of error costs: specification errors and application errors.  Specification errors reflect legal rules that do not map perfectly to the normative objectives of the law (e.g., a rule that would prohibit all horizontal mergers by dominant platforms when some such mergers are procompetitive or welfare-enhancing).  Application errors reflect mistaken application of the legal rule to the facts of the case (e.g., an erroneous determination whether the conduct excludes rivals or provides efficiency benefits).   

Application errors are the most likely source of error costs in U.S. antitrust law.  The law relies largely on abstract principles that track the normative objectives of the law (e.g., conduct by a monopoly that excludes rivals and has no efficiency benefit is illegal). Several recent U.S. antitrust decisions (American Express, Qualcomm, and Farelogix among them) suggest that error costs in a law enforcement regime like that in the U.S. might be substantial and even that case-by-case application of principles that require applying economic understanding to diverse factual circumstances might be beyond the competence of generalist judges.  Default rules applicable in special circumstances reduce application errors but at the expense of specification errors.

Specification errors are more likely with categorical rules, like those suggested by Petit.  The total costs of those specification errors are likely to exceed the costs of mistaken decisions in individual cases because categorical rules guide firm conduct in general, not just in decided cases, and rules that embody specification errors are thus likely to encourage undesirable conduct and to discourage desirable conduct in matters that are not the subject of enforcement proceedings.  Application errors, unless systematic and predictable, are less likely to impose substantial costs beyond the costs of mistaken decisions in the decided cases themselves.  Whether any particular categorical rules are likely to have error costs greater than the error costs of the existing U.S. antitrust law will depend in large part on the specification errors of the rules and on whether their application is likely to be accompanied by substantial application costs.

As discussed above, the particular rules suggested by Petit appear to embody important specification errors.  They are likely also to lead to substantial application errors because they would require determination of difficult factual issues.  These include, for example, whether the market at issue has tipped, whether the merger is horizontal, and whether the platform’s entry into an untipped market is intended to be permanent.  It thus seems unlikely, at least from this casual review, that adoption of the rules suggested by Petit will reduce error costs.

 Petit’s impressive study might therefore be most valuable, not as a roadmap for action, but as a source of insight and understanding of the facts – what Petit calls a “mental model to help decision makers understand the idiosyncrasies of digital markets.”  If viewed, not as a prescription for action, but as a description of the digital world, the Moligopoly Scenario can help address the urgent matter of reducing the costs of application errors in U.S. antitrust law.

[TOTM: The following is part of a symposium by TOTM guests and authors marking the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario.” The entire series of posts is available here.]

To mark the release of Nicolas Petit’s “Big Tech and the Digital Economy: The Moligopoly Scenario”, Truth on the Market and  International Center for Law & Economics (ICLE) are hosting some of the world’s leading scholars and practitioners of competition law and economics to discuss some of the book’s themes.

In his book, Petit offers a “moligopoly” framework for understanding competition between large tech companies that may have significant market shares in their ‘home’ markets but nevertheless compete intensely in adjacent ones. Petit argues that tech giants coexist as both monopolies and oligopolies in markets defined by uncertainty and dynamism, and offers policy tools for dealing with the concerns people have about these markets that avoid crude “big is bad” assumptions and do not try to solve non-economic harms with the tools of antitrust.

This symposium asks contributors to give their thoughts either on the book as a whole or on a selected chapter that relates to their own work. In it we hope to explore some of Petit’s arguments with different perspectives from our contributors.

Confirmed Participants

As in the past (see examples of previous TOTM blog symposia here), we’ve lined up an outstanding and diverse group of scholars to discuss these issues, including:

  • Kelly Fayne, Antitrust Associate, Latham & Watkins
  • Shane Greenstein, Professor of Business Administration; Co-chair of the HBS Digital Initiative, Harvard Business School
  • Peter Klein, Professor of Entrepreneurship and Chair, Department of Entrepreneurship and Corporate Innovation, Baylor University
  • William Kovacic, Global Competition Professor of Law and Policy; Director, Competition Law Center, George Washington University Law
  • Kai-Uwe Kuhn, Academic Advisor, University of East Anglia
  • Richard Langlois, Professor of Economics, University of Connecticut
  • Doug Melamed, Professor of the Practice of Law, Stanford law School
  • David Teece, Professor in Global Business, University of California’s Haas School of Business (Berkeley); Director, Center for Global Strategy; Governance and Faculty Director, Institute for Business Innovation

Thank you again to all of the excellent authors for agreeing to participate in this interesting and timely symposium.

Look for the first posts starting later today, October 12, 2020.

During last week’s antitrust hearing, Representative Jamie Raskin (D-Md.) provided a sound bite that served as a salvo: “In the 19th century we had the robber barons, in the 21st century we get the cyber barons.” But with sound bites, much like bumper stickers, there’s no room for nuance or scrutiny.

The news media has extensively covered the “questioning” of the CEOs of Facebook, Google, Apple, and Amazon (collectively “Big Tech”). Of course, most of this questioning was actually political posturing with little regard for the actual answers or antitrust law. But just like with the so-called robber barons, the story of Big Tech is much more interesting and complex. 

The myth of the robber barons: Market entrepreneurs vs. political entrepreneurs

The Robber Barons: The Great American Capitalists, 1861–1901 (1934) by Matthew Josephson, was written in the midst of America’s Great Depression. Josephson, a Marxist with sympathies for the Soviet Union, made the case that the 19th century titans of industry were made rich on the backs of the poor during the industrial revolution. This idea that the rich are wealthy due to their robbing of the rest of us is an idea that has long outlived Josephson and Marx down to the present day, as exemplified by the writings of Matt Stoller and the politics of the House Judiciary Committee.

In his Myth of the Robber Barons, Burton Folsom, Jr. makes the case that much of the received wisdom on the great 19th century businessmen is wrong. He distinguishes between the market entrepreneurs, which generated wealth by selling newer, better, or less expensive products on the free market without any government subsidies, and the political entrepreneurs, who became rich primarily by influencing the government to subsidize their businesses, or enacting legislation or regulation that harms their competitors. 

Folsom narrates the stories of market entrepreneurs, like Thomas Gibbons & Cornelius Vanderbilt (steamships), James Hill (railroads), the Scranton brothers (iron rails), Andrew Carnegie & Charles Schwab (steel), and John D. Rockefeller (oil), who created immense value for consumers by drastically reducing the prices of the goods and services their companies provided. Yes, these men got rich. But the value society received was arguably even greater. Wealth was created because market exchange is a positive-sum game.

On the other hand, the political entrepreneurs, like Robert Fulton & Edward Collins (steamships), and Leland Stanford & Henry Villard (railroads), drained societal resources by using taxpayer money to create inefficient monopolies. Because they were not subject to the same market discipline due to their favored position, cutting costs and prices were less important to them than the market entrepreneurs. Their wealth was at the expense of the rest of society, because political exchange is a zero-sum game.

Big Tech makes society better off

Today’s titans of industry, i.e. Big Tech, have created enormous value for society. This is almost impossible to deny, though some try. From zero-priced search on Google, to the convenience and price of products on Amazon, to the nominally free social network(s) of Facebook, to the plethora of options in Apple’s App Store, consumers have greatly benefited from Big Tech. Consumers flock to use Google, Facebook, Amazon, and Apple for a reason: they believe they are getting a great deal. 

By and large, the techlash comes from “intellectuals” who think they know better than consumers acting in the marketplace about what is good for them. And as noted by Alec Stapp, Americans in opinion polls consistently put a great deal of trust in Big Tech, at least compared to government institutions:

One of the basic building blocks of economics is that both parties benefit from voluntary exchanges ex ante, or else they would not be willing to engage in it. The fact that consumers use Big Tech to the extent they do is overwhelming evidence of their value. Obfuscations like “market power” mislead more than they inform. In the absence of governmental barriers to entry, consumers voluntarily choosing Big Tech does not mean they have power, it means they provide great service.

Big Tech companies are run by entrepreneurs who must ultimately answer to consumers. In a market economy, profits are a signal that entrepreneurs have successfully brought value to society. But they are also a signal to potential competitors. If Big Tech companies don’t continue to serve the interests of their consumers, they risk losing them to competitors.

Big Tech’s CEOs seem to get this. For instance, Jeff Bezos’ written testimony emphasized the importance of continual innovation at Amazon as a reason for its success:

Since our founding, we have strived to maintain a “Day One” mentality at the company. By that I mean approaching everything we do with the energy and entrepreneurial spirit of Day One. Even though Amazon is a large company, I have always believed that if we commit ourselves to maintaining a Day One mentality as a critical part of our DNA, we can have both the scope and capabilities of a large company and the spirit and heart of a small one. 

In my view, obsessive customer focus is by far the best way to achieve and maintain Day One vitality. Why? Because customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and a constant desire to delight customers drives us to constantly invent on their behalf. As a result, by focusing obsessively on customers, we are internally driven to improve our services, add benefits and features, invent new products, lower prices, and speed up shipping times—before we have to. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it. And I could give you many such examples. Not every business takes this customer-first approach, but we do, and it’s our greatest strength.

The economics of multi-sided platforms: How Big Tech does it

Economically speaking, Big Tech companies are (mostly) multi-sided platforms. Multi-sided platforms differ from regular firms in that they have to serve two or more of these distinct types of consumers to generate demand from any of them.

Economist David Evans, who has done as much as any to help us understand multi-sided platforms, has identified three different types:

  1. Market-Makers enable members of distinct groups to transact with each other. Each member of a group values the service more highly if there are more members of the other group, thereby increasing the likelihood of a match and reducing the time it takes to find an acceptable match. (Amazon and Apple’s App Store)
  2. Audience-Makers match advertisers to audiences. Advertisers value a service more if there are more members of an audience who will react positively to their messages; audiences value a service more if there is more useful “content” provided by audience-makers. (Google, especially through YouTube, and Facebook, especially through Instagram)
  3. Demand-Coordinators make goods and services that generate indirect network effects across two or more groups. These platforms do not strictly sell “transactions” like a market maker or “messages” like an audience-maker; they are a residual category much like irregular verbs – numerous, heterogeneous, and important. Software platforms such as Windows and the Palm OS, payment systems such as credit cards, and mobile telephones are demand coordinators. (Android, iOS)

In order to bring value, Big Tech has to consider consumers on all sides of the platform they operate. Sometimes, this means consumers on one side of the platform subsidize the other. 

For instance, Google doesn’t charge its users to use its search engine, YouTube, or Gmail. Instead, companies pay Google to advertise to their users. Similarly, Facebook doesn’t charge the users of its social network, advertisers on the other side of the platform subsidize them. 

As their competitors and critics love to point out, there are some complications in that some platforms also compete in the markets they create. For instance, Apple does place its own apps inits App Store, and Amazon does engage in some first-party sales on its platform. But generally speaking, both Apple and Amazon act as matchmakers for exchanges between users and third parties.

The difficulty for multi-sided platforms is that they need to balance the interests of each part of the platform in a way that maximizes its value. 

For Google and Facebook, they need to balance the interests of users and advertisers. In the case of each, this means a free service for users that is subsidized by the advertisers. But the advertisers gain a lot of value by tailoring ads based upon search history, browsing history, and likes and shares. For Apple and Amazon they need to create platforms which are valuable for buyers and sellers, and balance how much first-party competition they want to have before they lose the benefits of third-party sales.

There are no easy answers to creating a search engine, a video service, a social network, an App store, or an online marketplace. Everything from moderation practices, to pricing on each side of the platform, to the degree of competition from the platform operators themselves needs to be balanced right or these platforms would lose participants on one side of the platform or the other to competitors. 

Conclusion

Representative Raskin’s “cyber barons” were raked through the mud by Congress. But much like the falsely identified robber barons of the 19th century who were truly market entrepreneurs, the Big Tech companies of today are wrongfully maligned.

No one is forcing consumers to use these platforms. The incredible benefits they have brought to society through market processes shows they are not robbing anyone. Instead, they are constantly innovating and attempting to strike a balance between consumers on each side of their platform. 

The myth of the cyber barons need not live on any longer than last week’s farcical antitrust hearing.

This guest post is by Corbin K. Barthold, Senior Litigation Counsel at Washington Legal Foundation.

A boy throws a brick through a bakeshop window. He flees and is never identified. The townspeople gather around the broken glass. “Well,” one of them says to the furious baker, “at least this will generate some business for the windowmaker!”

A reasonable statement? Not really. Although it is indeed a good day for the windowmaker, the money for the new window comes from the baker. Perhaps the baker was planning to use that money to buy a new suit. Now, instead of owning a window and a suit, he owns only a window. The windowmaker’s gain, meanwhile, is simply the tailor’s loss.

This parable of the broken window was conceived by Frédéric Bastiat, a nineteenth-century French economist. He wanted to alert the reader to the importance of opportunity costs—in his words, “that which is not seen.” Time and money spent on one activity cannot be spent on another.

Today Bastiat might tell the parable of the harassed technology company. A tech firm creates a revolutionary new product or service and grows very large. Rivals, lawyers, activists, and politicians call for an antitrust probe. Eventually they get their way. Millions of documents are produced, dozens of depositions are taken, and several hearings are held. In the end no concrete action is taken. “Well,” the critics say, “at least other companies could grow while the firm was sidetracked by the investigation!”

Consider the antitrust case against Microsoft twenty years ago. The case ultimately settled, and Microsoft agreed merely to modify minor aspects of how it sold its products. “It’s worth wondering,” writes Brian McCullough, a generally astute historian of the internet, “how much the flowering of the dot-com era was enabled by the fact that the most dominant, rapacious player in the industry was distracted while the new era was taking shape.” “It’s easy to see,” McCullough says, “that the antitrust trial hobbled Microsoft strategically, and maybe even creatively.”

Should we really be glad that an antitrust dispute “distracted” and “hobbled” Microsoft? What would a focused and unfettered Microsoft have achieved? Maybe nothing; incumbents often grow complacent. Then again, Microsoft might have developed a great search engine or social-media platform. Or it might have invented something that, thanks to the lawsuit, remains absent to this day. What Microsoft would have created in the early 2000s, had it not had to fight the government, is that which is not seen.

But doesn’t obstructing the most successful companies create “room” for new competitors? David Cicilline, the chairman of the House’s antitrust subcommittee, argues that “just pursuing the [Microsoft] enforcement action itself” made “space for an enormous amount of additional innovation and competition.” He contends that the large tech firms seek to buy promising startups before they become full-grown threats, and that such purchases must be blocked.

It’s easy stuff to say. It’s not at all clear that it’s true or that it makes sense. Hindsight bias is rampant. In 2012, for example, Facebook bought Instagram for $1 billion, a purchase that is now cited as a quintessential “killer acquisition.” At the time of the sale, however, Instagram had 27 million users and $0 in revenue. Today it has around a billion users, it is estimated to generate $7 billion in revenue each quarter, and it is worth perhaps $100 billion. It is presumptuous to declare that Instagram, which had only 13 employees in 2012, could have achieved this success on its own.

If distraction is an end in itself, last week’s Big Tech hearing before Cicilline and his subcommittee was a smashing success. Presumably Jeff Bezos, Tim Cook, Sundar Pichai, and Mark Zuckerberg would like to spend the balance of their time developing the next big innovations and staying ahead of smart, capable, ruthless competitors, starting with each other and including foreign firms such as ByteDance and Huawei. Last week they had to put their aspirations aside to prepare for and attend five hours of political theater.

The most common form of exchange at the hearing ran as follows. A representative asks a slanted question. The witness begins to articulate a response. The representative cuts the witness off. The representative gives a prepared speech about how the witness’s answer proved her point.

Lucy Kay McBath, a first-term congresswoman from Georgia, began one such drill with the claim that Facebook’s privacy policy from 2004, when Zuckerberg was 20 and Facebook had under a million users, applies in perpetuity. “We do not and will not use cookies to collect private information from any users,” it said. Has Facebook broken its “promise,” McBath asked, not to use cookies to collect private information? No, Zuckerberg explained (letting the question’s shaky premise slide), Facebook uses only standard log-in cookies.

“So once again, you do not use cookies? Yes or no?” McBath interjected. Having now asked a completely different question, and gotten a response resembling what she wanted—“Yes, we use cookies [on log-in features]”—McBath could launch into her canned condemnation. “The bottom line here,” she said, reading from her page, “is that you broke a commitment to your users. And who can say whether you may or may not do that again in the future?” The representative pressed on with her performance, not noticing or not caring that the person she was pretending to engage with had upset her script.

Many of the antitrust subcommittee’s queries had nothing to do with antitrust. One representative fixated on Amazon’s ties with the Southern Poverty Law Center. Another seemed to want Facebook to interrogate job applicants about their political beliefs. A third asked Zuckerberg to answer for the conduct of Twitter. One representative demanded that social-media posts about unproven Covid-19 treatments be left up, another that they be taken down. Most of the questions that were at least vaguely on topic, meanwhile, were exceedingly weak. The representatives often mistook emails showing that tech CEOs play to win, that they seek to outcompete challengers and rivals, for evidence of anticompetitive harm to consumers. And the panel was often treated like a customer-service hotline. This app developer ran into a difficulty; what say you, Mr. Cook? That third-party seller has a gripe; why won’t you listen to her, Mr. Bezos?

In his opening remarks, Bezos cited a survey that ranked Amazon one of the country’s most trusted institutions. No surprise there. In many places one could have ordered a grocery delivery from Amazon as the hearing started and had the goods put away before it ended. Was Bezos taking a muted dig at Congress? He had every right to—it is one of America’s least trusted institutions. Pichai, for his part, noted that many users would be willing to pay thousands of dollars a year for Google’s free products. Is Congress providing people that kind of value?

The advance of technology will never be an unalloyed blessing. There are legitimate concerns, for instance, about how social-media platforms affect public discourse. “Human beings evolved to gossip, preen, manipulate, and ostracize,” psychologist Jonathan Haidt and technologist Tobias Rose-Stockwell observe. Social media exploits these tendencies, they contend, by rewarding those who trade in the glib put-down, the smug pronouncement, the theatrical smear. Speakers become “cruel and shallow”; “nuance and truth” become “casualties in [a] competition to gain the approval of [an] audience.”

Three things are true at once. First, Haidt and Rose-Stockwell have a point. Second, their point goes only so far. Social media does not force people to behave badly. Assuming otherwise lets individual humans off too easy. Indeed, it deprives them of agency. If you think it is within your power to display grace, love, and transcendence, you owe it to others to think it is within their power as well.

Third, if you really want to see adults act like children, watch a high-profile congressional hearing. A hearing for Attorney General William Barr, held the day before the Big Tech hearing and attended by many of the same representatives, was a classic of the format.

The tech hearing was not as shambolic as the Barr hearing. And the representatives act like sanctimonious halfwits in part to concoct the sick burns that attract clicks on the very platforms built, facilitated, and delivered by the tech companies. For these and other obvious reasons, no one should feel sorry for the four men who spent a Wednesday afternoon serving as props for demagogues. But that doesn’t mean the charade was a productive use of time. There is always that which is not seen.

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Dirk Auer, (Senior Researcher, Liege Competition & Innovation Institute; Senior Fellow, ICLE).]

Across the globe, millions of people are rapidly coming to terms with the harsh realities of life under lockdown. As governments impose ever-greater social distancing measures, many of the daily comforts we took for granted are no longer available to us. 

And yet, we can all take solace in the knowledge that our current predicament would have been far less tolerable if the COVID-19 outbreak had hit us twenty years ago. Among others, we have Big Tech firms to thank for this silver lining. 

Contrary to the claims of critics, such as Senator Josh Hawley, Big Tech has produced game-changing innovations that dramatically improve our ability to fight COVID-19. 

The previous post in this series showed that innovations produced by Big Tech provide us with critical information, allow us to maintain some level of social interactions (despite living under lockdown), and have enabled companies, universities and schools to continue functioning (albeit at a severely reduced pace).

But apart from information, social interactions, and online working (and learning); what has Big Tech ever done for us?

One of the most underappreciated ways in which technology (mostly pioneered by Big Tech firms) is helping the world deal with COVID-19 has been a rapid shift towards contactless economic transactions. Not only are consumers turning towards digital goods to fill their spare time, but physical goods (most notably food) are increasingly being exchanged without any direct contact.

These ongoing changes would be impossible without the innovations and infrastructure that have emerged from tech and telecommunications companies over the last couple of decades. 

Of course, the overall picture is still bleak. The shift to contactless transactions has only slightly softened the tremendous blow suffered by the retail and restaurant industries – some predictions suggest their overall revenue could fall by at least 50% in the second quarter of 2020. Nevertheless, as explained below, this situation would likely be significantly worse without the many innovations produced by Big Tech companies. For that we would be thankful.

1. Food and other goods

For a start, the COVID-19 outbreak (and government measures to combat it) has caused many brick & mortar stores and restaurants to shut down. These closures would have been far harder to implement before the advent of online retail and food delivery platforms.

At the time of writing, e-commerce websites already appear to have witnessed a 20-30% increase in sales (other sources report 52% increase, compared to the same time last year). This increase will likely continue in the coming months.

The Amazon Retail platform has been at the forefront of this online shift.

  • Having witnessed a surge in online shopping, Amazon announced that it would be hiring 100.000 distribution workers to cope with the increased demand. Amazon’s staff have also been asked to work overtime in order to meet increased demand (in exchange, Amazon has doubled their pay for overtime hours).
  • To attract these new hires and ensure that existing ones continue working, Amazon simultaneously announced that it would be increasing wages in virus-hit countries (from $15 to $17, in the US) .
  • Amazon also stopped accepting “non-essential” goods in its warehouses, in order to prioritize the sale of household essentials and medical goods that are in high demand.
  • Finally, in Italy, Amazon decided not to stop its operations, despite some employees testing positive for COVID-19. Controversial as this move may be, Amazon’s private interests are aligned with those of society – maintaining the supply of essential goods is now more important than ever. 

And it is not just Amazon that is seeking to fill the breach left temporarily by brick & mortar retail. Other retailers are also stepping up efforts to distribute their goods online.

  • The apps of traditional retail chains have witnessed record daily downloads (thus relying on the smartphone platforms pioneered by Google and Apple).
  •  Walmart has become the go-to choice for online food purchases:

(Source: Bloomberg)

The shift to online shopping mimics what occurred in China, during its own COVID-19 lockdown. 

  • According to an article published in HBR, e-commerce penetration reached 36.6% of retail sales in China (compared to 29.7% in 2019). The same article explains how Alibaba’s technology is enabling traditional retailers to better manage their supply chains, ultimately helping them to sell their goods online.
  • A study by Nielsen ratings found that 67% of retailers would expand online channels. 
  • One large retailer shut many of its physical stores and redeployed many of its employees to serve as online influencers on WeChat, thus attempting to boost online sales.
  • Spurred by compassion and/or a desire to boost its brand abroad, Alibaba and its founder, Jack Ma, have made large efforts to provide critical medical supplies (notably tests kits and surgical masks) to COVID-hit countries such as the US and Belgium.

And it is not just retail that is adapting to the outbreak. Many restaurants are trying to stay afloat by shifting from in-house dining to deliveries. These attempts have been made possible by the emergence of food delivery platforms, such as UberEats and Deliveroo. 

These platforms have taken several steps to facilitate food deliveries during the outbreak.

  • UberEats announced that it would be waiving delivery fees for independent restaurants.
  • Both UberEats and Deliveroo have put in place systems for deliveries to take place without direct physical contact. While not entirely risk-free, meal delivery can provide welcome relief to people experiencing stressful lockdown conditions.

Similarly, the shares of Blue Apron – an online meal-kit delivery service – have surged more than 600% since the start of the outbreak.

In short, COVID-19 has caused a drastic shift towards contactless retail and food delivery services. It is an open question how much of this shift would have been possible without the pioneering business model innovations brought about by Amazon and its online retail platform, as well as modern food delivery platforms, such as UberEats and Deliveroo. At the very least, it seems unlikely that it would have happened as fast.

The entertainment industry is another area where increasing digitization has made lockdowns more bearable. The reason is obvious: locked-down consumers still require some form of amusement. With physical supply chains under tremendous strain, and social gatherings no longer an option, digital media has thus become the default choice for many.

Data published by Verizon shows a sharp increase (in the week running from March 9 to March 16) in the consumption of digital entertainment, especially gaming:

This echoes other sources, which also report that the use of traditional streaming platforms has surged in areas hit by COVID-19.

  • Netflix subscriptions are said to be spiking in locked-down communities. During the first week of March, Netflix installations increased by 77% in Italy and 33% in Spain, compared to the February average. Netflix app downloads increased by 33% in Hong kong and South Korea. The Amazon Prime app saw a similar increase.
  • YouTube has also witnessed a surge in usage. 
  • Live streaming (on platforms such as Periscope, Twitch, YouTube, Facebook, Instagram, etc) has also increased in popularity. It is notably being used for everything from concerts and comedy clubs to religious services, and even zoo visits.
  • Disney Plus has also been highly popular. According to one source, half of US homes with children under the age of 10 purchased a Disney Plus subscription. This trend is expected to continue during the COVID-19 outbreak. Disney even released Frozen II three months ahead of schedule in order to boost new subscriptions.
  • Hollywood studios have started releasing some of their lower-profile titles directly on streaming services.

Traffic has also increased significantly on popular gaming platforms.

These are just a tiny sample of the many ways in which digital entertainment is filling the void left by social gatherings. It is thus central to the lives of people under lockdown.

2. Cashless payments

But all of the services that are listed above rely on cashless payments – be it to limit the risk or contagion or because these transactions take place remotely. Fintech innovations have thus turned out to be one of the foundations that make social distancing policies viable. 

This is particularly evident in the food industry. 

  • Food delivery platforms, like UberEats and Deliveroo, already relied on mobile payments.
  • Costa coffee (a UK equivalent to starbucks) went cashless in an attempt to limit the spread of COVID-19.
  • Domino’s Pizza, among other franchises, announced that it would move to contactless deliveries.
  • President Donald Trump is said to have discussed plans to keep drive-thru restaurants open during the outbreak. This would also certainly imply exclusively digital payments.
  • And although doubts remain concerning the extent to which the SARS-CoV-2 virus may, or may not, be transmitted via banknotes and coins, many other businesses have preemptively ceased to accept cash payments

As the Jodie Kelley – the CEO of the Electronic Transactions Association – put it, in a CNBC interview:

Contactless payments have come up as a new option for consumers who are much more conscious of what they touch. 

This increased demand for cashless payments has been a blessing for Fintech firms. 

  • Though it is too early to gage the magnitude of this shift, early signs – notably from China – suggest that mobile payments have become more common during the outbreak.
  • In China, Alipay announced that it expected to radically expand its services to new sectors – restaurants, cinema bookings, real estate purchases – in an attempt to compete with WeChat.
  • PayPal has also witnessed an uptick in transactions, though this growth might ultimately be weighed-down by declining economic activity.
  • In the past, Facebook had revealed plans to offer mobile payments across its platforms – Facebook, WhatsApp, Instagram & Libra. Those plans may not have been politically viable at the time. The COVID-19 could conceivably change this.

In short, the COVID-19 outbreak has increased our reliance on digital payments, as these can both take place remotely and, potentially, limit contamination via banknotes. None of this would have been possible twenty years ago when industry pioneers, such as PayPal, were in their infancy. 

3. High speed internet access

Similarly, it goes without saying that none of the above would be possible without the tremendous investments that have been made in broadband infrastructure, most notably by internet service providers. Though these companies have often faced strong criticism from the public, they provide the backbone upon which outbreak-stricken economies can function.

By causing so many activities to move online, the COVID-19 outbreak has put broadband networks to the test. So for, broadband infrastructure around the world has been up to the task. This is partly because the spike in usage has occurred in daytime hours (where network’s capacity is less straine), but also because ISPs traditionally rely on a number of tools to limit peak-time usage.

The biggest increases in usage seem to have occurred in daytime hours. As data from OpenVault illustrates:

According to BT, one of the UK’s largest telecoms operators, daytime internet usage is up by 50%, but peaks are still well within record levels (and other UK operators have made similar claims):

Anecdotal data also suggests that, so far, fixed internet providers have not significantly struggled to handle this increased traffic (the same goes for Content Delivery Networks). Not only were these networks already designed to withstand high peaks in demand, but ISPs have, such as Verizon, increased their  capacity to avoid potential issues.

For instance, internet speed tests performed using Ookla suggest that average download speeds only marginally decreased, it at all, in locked-down regions, compared to previous levels:

However, the same data suggests that mobile networks have faced slightly larger decreases in performance, though these do not appear to be severe. For instance, contrary to contemporaneous reports, a mobile network outage that occurred in the UK is unlikely to have been caused by a COVID-related surge. 

The robustness exhibited by broadband networks is notably due to long-running efforts by ISPs (spurred by competition) to improve download speeds and latency. As one article put it:

For now, cable operators’ and telco providers’ networks are seemingly withstanding the increased demands, which is largely due to the upgrades that they’ve done over the past 10 or so years using technologies such as DOCSIS 3.1 or PON.

Pushed in part by Google Fiber’s launch back in 2012, the large cable operators and telcos, such as AT&T, Verizon, Comcast and Charter Communications, have spent years upgrading their networks to 1-Gig speeds. Prior to those upgrades, cable operators in particular struggled with faster upload speeds, and the slowdown of broadband services during peak usage times, such as after school and in the evenings, as neighborhood nodes became overwhelmed.

This is not without policy ramifications.

For a start, these developments might vindicate antitrust enforcers that allowed mergers that led to higher investments, sometimes at the expense of slight reductions in price competition. This is notably the case for so-called 4 to 3 mergers in the wireless telecommunications industry. As an in-depth literature review by ICLE scholars concludes:

Studies of investment also found that markets with three facilities-based operators had significantly higher levels of investment by individual firms.

Similarly, the COVID-19 outbreak has also cast further doubts over the appropriateness of net neutrality regulations. Indeed, an important criticism of such regulations is that they prevent ISPs from using the price mechanism to manage congestion

It is these fears of congestion, likely unfounded (see above), that led the European Union to urge streaming companies to voluntarily reduce the quality of their products. To date, Netflix, Youtube, Amazon Prime, Apple, Facebook and Disney have complied with the EU’s request. 

This may seem like a trivial problem, but it was totally avoidable. As a result of net neutrality regulation, European authorities and content providers have been forced into an awkward position (likely unfounded) that unnecessarily penalizes those consumers and ISPs who do not face congestion issues (conversely, it lets failing ISPs off the hook and disincentivizes further investments on their part). This is all the more unfortunate that, as argued above, streaming services are essential to locked-down consumers. 

Critics may retort that small quality decreases hardly have any impact on consumers. But, if this is indeed the case, then content providers were using up unnecessary amounts of bandwidth before the COVID-19 outbreak (something that is less likely to occur without net neutrality obligations). And if not, then European consumers have indeed been deprived of something they valued. The shoe is thus on the other foot.

These normative considerations aside, the big point is that we can all be thankful to live in an era of high-speed internet.

 4. Concluding remarks 

Big Tech is rapidly emerging as one of the heroes of the COVID-19 crisis. Companies that were once on the receiving end of daily reproaches – by the press, enforcers, and scholars alike – are gaining renewed appreciation from the public. Times have changed since the early days of these companies – where consumers marvelled at the endless possibilities that their technologies offered. Today we are coming to realize how essential tech companies have become to our daily lives, and how they make society more resilient in the face of fat-tailed events, like pandemics.

The move to a contactless, digital, economy is a critical part of what makes contemporary societies better-equipped to deal with COVID-19. As this post has argued, online delivery, digital entertainment, contactless payments and high speed internet all play a critical role. 

To think that we receive some of these services for free…

Last year, Erik Brynjolfsson, Avinash Collins and Felix Eggers published a paper in PNAS, showing that consumers were willing to pay significant sums for online goods they currently receive free of charge. One can only imagine how much larger those sums would be if that same experiment were repeated today.

Even Big Tech’s critics are willing to recognize the huge debt we owe to these companies. As Stephen Levy wrote, in an article titled “Has the Coronavirus Killed the Techlash?”:

Who knew the techlash was susceptible to a virus?

The pandemic does not make any of the complaints about the tech giants less valid. They are still drivers of surveillance capitalism who duck their fair share of taxes and abuse their power in the marketplace. We in the press must still cover them aggressively and skeptically. And we still need a reckoning that protects the privacy of citizens, levels the competitive playing field, and holds these giants to account. But the momentum for that reckoning doesn’t seem sustainable at a moment when, to prop up our diminished lives, we are desperately dependent on what they’ve built. And glad that they built it.

While it is still early to draw policy lessons from the outbreak, one thing seems clear: the COVID-19 pandemic provides yet further evidence that tech policymakers should be extremely careful not to kill the goose that laid the golden egg, by promoting regulations that may thwart innovation (or the opposite).

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Dirk Auer, (Senior Fellow of Law & Economics, International Center for Law & Economics).]

Republican Senator Josh Hawley infamously argued that Big Tech is overrated. In his words:

My biggest critique of big tech is: what big innovation have they really given us? What is it now that in the last 15, 20 years that people who say they are the brightest minds in the country have given this country? What are their great innovations?

To Senator Hawley these questions seemed rhetorical. Big Tech’s innovations were trivial gadgets: “autoplay” and “snap streaks”, to quote him once more.

But, as any Monty Python connoisseur will tell you, rhetorical questions have a way of being … not so rhetorical. In one of Python’s most famous jokes, members of the “People’s Front of Judea” ask “what have the Romans ever done for us”? To their own surprise, the answer turns out to be a great deal:

This post is the first in a series examining some of the many ways in which Big Tech is making Coronavirus-related lockdowns and social distancing more bearable, and how Big Tech is enabling our economies to continue functioning (albeit at a severely reduced pace) throughout the outbreak. 

Although Big Tech’s contributions are just a small part of a much wider battle, they suggest that the world is drastically better situated to deal with COVID-19 than it would have been twenty years ago – and this is in no small part thanks to Big Tech’s numerous innovations.

Of course, some will say that the world would be even better equipped to handle COVID-19, if Big Tech had only been subject to more (or less) regulation. Whether these critiques are correct, or not, they are not the point of this post. For many, like Senator Hawley, it is apparently undeniable that tech does more harm than good. But, as this post suggests, that is surely not the case. And before we do decide whether and how we want to regulate it in the future, we should be particularly mindful of what aspects of “Big Tech” seem particularly suited to dealing with the current crisis, and ensure that we don’t adopt regulations that thoughtlessly undermine these.

1. Priceless information 

One of the most important ways in which Big Tech firms have supported international attempts to COVID-19 has been their role as  information intermediaries. 

As the title of a New York Times article put it:

When Facebook Is More Trustworthy Than the President: Social media companies are delivering reliable information in the coronavirus crisis. Why can’t they do that all the time?

The author is at least correct on the first part. Big Tech has become a cornucopia of reliable information about the virus:

  • Big Tech firms are partnering with the White House and other agencies to analyze massive COVID-19 datasets in order to help discover novel answers to questions about transmission, medical care, and other interventions. This partnership is possible thanks to the massive investments in AI infrastructure that the leading tech firms have made. 
  • Google Scholar has partnered with renowned medical journals (as well as public authorities) to guide citizens towards cutting edge scholarship relating to COVID-19. This a transformative ressource in a world of lockdows and overburdened healthcare providers.
  • Google has added a number of features to its main search engine – such as a “Coronavirus Knowledge Panel” and SOS alerts – in order to help users deal with the spread of the virus.
  • On Twitter, information and insights about COVID-19 compete in the market for ideas. Numerous news outlets have published lists of recommended people to follow (Fortune, Forbes). 

    Furthermore – to curb some of the unwanted effects of an unrestrained market for ideas – Twitter (and most other digital platforms) links to the websites of public authorities when users search for COVID-related hashtags.
  • This flow of information is a two-way street: Twitter, Facebook and Reddit, among others, enable citizens and experts to weigh in on the right policy approach to COVID-19. 

    Though the results are sometimes far from perfect, these exchanges may prove invaluable in critical times where usual methods of policy-making (such as hearings and conferences) are mostly off the table.
  • Perhaps most importantly, the Internet is a precious source of knowledge about how to deal with an emerging virus, as well as life under lockdown. We often take for granted how much of our lives benefit from extreme specialization. These exchanges are severely restricted under lockdown conditions. Luckily, with the internet and modern search engines (pioneered by Google), most of the world’s information is but a click away.

    For example, Facebook Groups have been employed by users of the social media platform in order to better coordinate necessary activity among community members — like giving blood — while still engaging in social distancing.

In short, search engines and social networks have been beacons of information regarding COVID-19. Their mostly bottom-up approach to knowledge generation (i.e. popular topics emerge organically) is essential in a world of extreme uncertainty. This has ultimately enabled these players to stay ahead of the curve in bringing valuable information to citizens around the world.

2. Social interactions

This is probably the most obvious way in which Big Tech is making life under lockdown more bearable for everyone. 

  • In Italy, Whatsapp messages and calls jumped by 20% following the outbreak of COVID-19. And Microsoft claims that the use of Skype jumped by 100%.
  • Younger users are turning to social networks, like TikTok, to deal with the harsh realities of the pandemic.
  • Strangers are using Facebook groups to support each other through difficult times.
  • And institutions, like the WHO, are piggybacking on this popularity to further raise awareness about COVID-19 via social media. 
  • In South Africa, health authorities even created a whatsapp contact to answer users questions about the virus.
  • Most importantly, social media is a godsend for senior citizens and anyone else who may have to live in almost total isolation for the foreseeable future. For instance, nursing homes are putting communications apps, like Skype and WhatsApp, in the hands of their patients, to keep up their morale (here and here).

And with the economic effects of COVID-19 starting to gather speed, users will more than ever be grateful to receive these services free of charge. Sharing data – often very limited amounts – with a platform is an insignificant price to pay in times of economic hardship. 

3. Working & Learning

It will also be impossible to effectively fight COVID-19 if we cannot maintain the economy afloat. Stock markets have already plunged by record amounts. Surely, these losses would be unfathomably worse if many of us were not lucky enough to be able to work, and from the safety of our own homes. And for those individuals who are unable to work from home, their own exposure is dramatically reduced thanks to a significant proportion of the population that can stay out of public.

Once again, we largely have Big Tech to thank for this. 

  • Downloads of Microsoft Teams and Zoom are surging on both Google and Apple’s app stores. This is hardly surprising. With much of the workforce staying at home, these video-conference applications have become essential. The increased load generated by people working online might even have caused Microsoft Teams to crash in Europe.
  • According to Microsoft, the number of Microsoft Teams meetings increased by 500 percent in China.
  • Sensing that the current crisis may last for a while, some firms have also started to conduct job interviews online; populars apps for doing so include Skype, Zoom and Whatsapp. 
  • Slack has also seen a surge in usage, as firms set themselves up to work remotely. It has started offering free training, to help firms move online.
  • Along similar lines, Google recently announced that its G suite of office applications – which enables users to share and work on documents online – had recently passed 2 Billion users.
  • Some tech firms (including Google, Microsoft and Zoom) have gone a step further and started giving away some of their enterprise productivity software, in order to help businesses move their workflows online.

And Big Tech is also helping universities, schools and parents to continue providing coursework and lectures to their students/children.

  • Zoom and Microsoft Teams have been popular choices for online learning. To facilitate the transition to online learning, Zoom has notably lifted time limits relating to the free version of its app (for schools in the most affected areas).
  • Even in the US, where the virus outbreak is currently smaller than in Europe, thousands of students are already being taught online.
  • Much of the online learning being conducted for primary school children is being done with affordable Chromebooks. And some of these Chromebooks are distributed to underserved schools through grant programs administered by Google.
  • Moreover, at the time of writing, most of the best selling books on Amazon.com are pre-school learning books:

Finally, the advent of online storage services, such as Dropbox and Google Drive, has largely alleviated the need for physical copies of files. In turn, this enables employees to remotely access all the files they need to stay productive. While this may be convenient under normal circumstances, it becomes critical when retrieving a binder in the office is no longer an option.

4. So what has Big Tech ever done for us?

With millions of families around the world currently under forced lockdown, it is becoming increasingly evident that Big Tech’s innovations are anything but trivial. Innovations that seemed like convenient tools only a couple of days ago, are now becoming essential parts of our daily lives (or, at least, we are finally realizing how powerful they truly are). 

The fight against COVID-19 will be hard. We can at least be thankful that we have Big Tech by our side. Paraphrasing the Monty Python crew: 

Q: What has Big Tech ever done for us? 

A: Abundant, free, and easily accessible information. Precious social interactions. Online working and learning.

Q: But apart from information, social interactions, and online working (and learning); what has Big Tech ever done for us?

For the answer to this question, I invite you to stay tuned for the next post in this series.