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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

[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 Nicolas Petit himself, the Joint Chair in Competition Law at the Department of Law at European University Institute in Fiesole, Italy, and at EUI’s Robert Schuman Centre for Advanced Studies. He is also invited professor at the College of Europe in Bruges
.]

A lot of water has gone under the bridge since my book was published last year. To close this symposium, I thought I would discuss the new phase of antirust statutorification taking place before our eyes. In the United States, Congress is working on five antitrust bills that propose to subject platforms to stringent obligations, including a ban on mergers and acquisitions, required data portability and interoperability, and line-of-business restrictions. In the European Union (EU), lawmakers are examining the proposed Digital Markets Act (“DMA”) that sets out a complicated regulatory system for digital “gatekeepers,” with per se behavioral limitations of their freedom over contractual terms, technological design, monetization, and ecosystem leadership.

Proponents of legislative reform on both sides of the Atlantic appear to share the common view that ongoing antitrust adjudication efforts are both instrumental and irrelevant. They are instrumental because government (or plaintiff) losses build the evidence needed to support the view that antitrust doctrine is exceedingly conservative, and that legal reform is needed. Two weeks ago, antitrust reform activists ran to Twitter to point out that the U.S. District Court dismissal of the Federal Trade Commission’s (FTC) complaint against Facebook was one more piece of evidence supporting the view that the antitrust pendulum needed to swing. They are instrumental because, again, government (or plaintiffs) wins will support scaling antitrust enforcement in the marginal case by adoption of governmental regulation. In the EU, antitrust cases follow each other almost like night the day, lending credence to the view that regulation will bring much needed coordination and economies of scale.

But both instrumentalities are, at the end of the line, irrelevant, because they lead to the same conclusion: legislative reform is long overdue. With this in mind, the logic of lawmakers is that they need not await the courts, and they can advance with haste and confidence toward the promulgation of new antitrust statutes.

The antitrust reform process that is unfolding is a cause for questioning. The issue is not legal reform in itself. There is no suggestion here that statutory reform is necessarily inferior, and no correlative reification of the judge-made-law method. Legislative intervention can occur for good reason, like when it breaks judicial inertia caused by ideological logjam.

The issue is rather one of precipitation. There is a lot of learning in the cases. The point, simply put, is that a supplementary court-legislative dialogue would yield additional information—or what Guido Calabresi has called “starting points” for regulation—that premature legislative intervention is sweeping under the rug. This issue is important because specification errors (see Doug Melamed’s symposium piece on this) in statutory legislation are not uncommon. Feedback from court cases create a factual record that will often be missing when lawmakers act too precipitously.

Moreover, a court-legislative iteration is useful when the issues in discussion are cross-cutting. The digital economy brings an abundance of them. As tech analysist Ben Evans has observed, data-sharing obligations raise tradeoffs between contestability and privacy. Chapter VI of my book shows that breakups of social networks or search engines might promote rivalry and, at the same time, increase the leverage of advertisers to extract more user data and conduct more targeted advertising. In such cases, Calabresi said, judges who know the legal topography are well-placed to elicit the preferences of society. He added that they are better placed than government agencies’ officials or delegated experts, who often attend to the immediate problem without the big picture in mind (all the more when officials are denied opportunities to engage with civil society and the press, as per the policy announced by the new FTC leadership).

Of course, there are three objections to this. The first consists of arguing that statutes are needed now because courts are too slow to deal with problems. The argument is not dissimilar to Frank Easterbrook’s concerns about irreversible harms to the economy, though with a tweak. Where Easterbook’s concern was one of ossification of Type I errors due to stare decisis, the concern here is one of entrenchment of durable monopoly power in the digital sector due to Type II errors. The concern, however, fails the test of evidence. The available data in both the United States and Europe shows unprecedented vitality in the digital sector. Venture capital funding cruises at historical heights, fueling new firm entry, business creation, and economic dynamism in the U.S. and EU digital sectors, topping all other industries. Unless we require higher levels of entry from digital markets than from other industries—or discount the social value of entry in the digital sector—this should give us reason to push pause on lawmaking efforts.

The second objection is that following an incremental process of updating the law through the courts creates intolerable uncertainty. But this objection, too, is unconvincing, at best. One may ask which of an abrupt legislative change of the law after decades of legal stability or of an experimental process of judicial renovation brings more uncertainty.

Besides, ad hoc statutes, such as the ones in discussion, are likely to pose quickly and dramatically the problem of their own legal obsolescence. Detailed and technical statutes specify rights, requirements, and procedures that often do not stand the test of time. For example, the DMA likely captures Windows as a core platform service subject to gatekeeping. But is the market power of Microsoft over Windows still relevant today, and isn’t it constrained in effect by existing antitrust rules?  In antitrust, vagueness in critical statutory terms allows room for change.[1] The best way to give meaning to buzzwords like “smart” or “future-proof” regulation consists of building in first principles, not in creating discretionary opportunities for permanent adaptation of the law. In reality, it is hard to see how the methods of future-proof regulation currently discussed in the EU creates less uncertainty than a court process.

The third objection is that we do not need more information, because we now benefit from economic knowledge showing that existing antitrust laws are too permissive of anticompetitive business conduct. But is the economic literature actually supportive of stricter rules against defendants than the rule-of-reason framework that applies in many unilateral conduct cases and in merger law? The answer is surely no. The theoretical economic literature has travelled a lot in the past 50 years. Of particular interest are works on network externalities, switching costs, and multi-sided markets. But the progress achieved in the economic understanding of markets is more descriptive than normative.

Take the celebrated multi-sided market theory. The main contribution of the theory is its advice to decision-makers to take the periscope out, so as to consider all possible welfare tradeoffs, not to be more or less defendant friendly. Payment cards provide a good example. Economic research suggests that any antitrust or regulatory intervention on prices affect tradeoffs between, and payoffs to, cardholders and merchants, cardholders and cash users, cardholders and banks, and banks and card systems. Equally numerous tradeoffs arise in many sectors of the digital economy, like ridesharing, targeted advertisement, or social networks. Multi-sided market theory renders these tradeoffs visible. But it does not come with a clear recipe for how to solve them. For that, one needs to follow first principles. A system of measurement that is flexible and welfare-based helps, as Kelly Fayne observed in her critical symposium piece on the book.

Another example might be worth considering. The theory of increasing returns suggests that markets subject to network effects tend to converge around the selection of a single technology standard, and it is not a given that the selected technology is the best one. One policy implication is that social planners might be justified in keeping a second option on the table. As I discuss in Chapter V of my book, the theory may support an M&A ban against platforms in tipped markets, on the conjecture that the assets of fringe firms might be efficiently repositioned to offer product differentiation to consumers. But the theory of increasing returns does not say under what conditions we can know that the selected technology is suboptimal. Moreover, if the selected technology is the optimal one, or if the suboptimal technology quickly obsolesces, are policy efforts at all needed?

Last, as Bo Heiden’s thought provoking symposium piece argues, it is not a given that antitrust enforcement of rivalry in markets is the best way to maintain an alternative technology alive, let alone to supply the innovation needed to deliver economic prosperity. Government procurement, science and technology policy, and intellectual-property policy might be equally effective (note that the fathers of the theory, like Brian Arthur or Paul David, have been very silent on antitrust reform).

There are, of course, exceptions to the limited normative content of modern economic theory. In some areas, economic theory is more predictive of consumer harms, like in relation to algorithmic collusion, interlocking directorates, or “killer” acquisitions. But the applications are discrete and industry-specific. All are insufficient to declare that the antitrust apparatus is dated and that it requires a full overhaul. When modern economic research turns normative, it is often way more subtle in its implications than some wild policy claims derived from it. For example, the emerging studies that claim to identify broad patterns of rising market power in the economy in no way lead to an implication that there are no pro-competitive mergers.

Similarly, the empirical picture of digital markets is incomplete. The past few years have seen a proliferation of qualitative research reports on industry structure in the digital sectors. Most suggest that industry concentration has risen, particularly in the digital sector. As with any research exercise, these reports’ findings deserve to be subject to critical examination before they can be deemed supportive of a claim of “sufficient experience.” Moreover, there is no reason to subject these reports to a lower standard of accountability on grounds that they have often been drafted by experts upon demand from antitrust agencies. After all, we academics are ethically obliged to be at least equally exacting with policy-based research as we are with science-based research.

Now, with healthy skepticism at the back of one’s mind, one can see immediately that the findings of expert reports to date have tended to downplay behavioral observations that counterbalance findings of monopoly power—such as intense business anxiety, technological innovation, and demand-expansion investments in digital markets. This was, I believe, the main takeaway from Chapter IV of my book. And less than six months ago, The Economist ran its leading story on the new marketplace reality of “Tech’s Big Dust-Up.”

More importantly, the findings of the various expert reports never seriously contemplate the possibility of competition by differentiation in business models among the platforms. Take privacy, for example. As Peter Klein reasonably writes in his symposium article, we should not be quick to assume market failure. After all, we might have more choice than meets the eye, with Google free but ad-based, and Apple pricy but less-targeted. More generally, Richard Langlois makes a very convincing point that diversification is at the heart of competition between the large digital gatekeepers. We might just be too short-termist—here, digital communications technology might help create a false sense of urgency—to wait for the end state of the Big Tech moligopoly.

Similarly, the expert reports did not really question the real possibility of competition for the purchase of regulation. As in the classic George Stigler paper, where the railroad industry fought motor-trucking competition with state regulation, the businesses that stand to lose most from the digital transformation might be rationally jockeying to convince lawmakers that not all business models are equal, and to steer regulation toward specific business models. Again, though we do not know how to consider this issue, there are signs that a coalition of large news corporations and the publishing oligopoly are behind many antitrust initiatives against digital firms.

Now, as is now clear from these few lines, my cautionary note against antitrust statutorification might be more relevant to the U.S. market. In the EU, sunk investments have been made, expectations have been created, and regulation has now become inevitable. The United States, however, has a chance to get this right. Court cases are the way to go. And unlike what the popular coverage suggests, the recent District Court dismissal of the FTC case far from ruled out the applicability of U.S. antitrust laws to Facebook’s alleged killer acquisitions. On the contrary, the ruling actually contains an invitation to rework a rushed complaint. Perhaps, as Shane Greenstein observed in his retrospective analysis of the U.S. Microsoft case, we would all benefit if we studied more carefully the learning that lies in the cases, rather than haste to produce instant antitrust analysis on Twitter that fits within 280 characters.


[1] But some threshold conditions like agreement or dominance might also become dated. 

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.

In his recent concurrence in Biden v. Knight, Justice Clarence Thomas sketched a roadmap for how to regulate social-media platforms. The animating factor for Thomas, much like for other conservatives, appears to be a sense that Big Tech has exhibited anti-conservative bias in its moderation decisions, most prominently by excluding former President Donald Trump from Twitter and Facebook. The opinion has predictably been greeted warmly by conservative champions of social-media regulation, who believe it shows how states and the federal government can proceed on this front.

While much of the commentary to date has been on whether Thomas got the legal analysis right, or on the uncomfortable fit of common-carriage law to social media, the deeper question of the First Amendment’s protection of private ordering has received relatively short shrift.

Conservatives’ main argument has been that Big Tech needs to be reined in because it is restricting the speech of private individuals. While conservatives traditionally have defended the state-action doctrine and the right to editorial discretion, they now readily find exceptions to both in order to justify regulating social-media companies. But those two First Amendment doctrines have long enshrined an important general principle: private actors can set the rules for speech on their own property. I intend to analyze this principle from a law & economics perspective and show how it benefits society.

Who Balances the Benefits and Costs of Speech?

Like virtually any other human activity, there are benefits and costs to speech and it is ultimately subjective individual preference that determines the value that speech has. The First Amendment protects speech from governmental regulation, with only limited exceptions, but that does not mean all speech is acceptable or must be tolerated. Under the state-action doctrine, the First Amendment only prevents the government from restricting speech.

Some purported defenders of the principle of free speech no longer appear to see a distinction between restraints on speech imposed by the government and those imposed by private actors. But this is surely mistaken, as no one truly believes all speech protected by the First Amendment should be without consequence. In truth, most regulation of speech has always come by informal means—social mores enforced by dirty looks or responsive speech from others.

Moreover, property rights have long played a crucial role in determining speech rules within any given space. If a man were to come into my house and start calling my wife racial epithets, I would not only ask that person to leave but would exercise my right as a property owner to eject the trespasser—if necessary, calling the police to assist me. I similarly could not expect to go to a restaurant and yell at the top of my lungs about political issues and expect them—even as “common carriers” or places of public accommodation—to allow me to continue.

As Thomas Sowell wrote in Knowledge and Decisions:

The fact that different costs and benefits must be balanced does not in itself imply who must balance them―or even that there must be a single balance for all, or a unitary viewpoint (one “we”) from which the issue is categorically resolved.

Knowledge and Decisions, p. 240

When it comes to speech, the balance that must be struck is between one individual’s desire for an audience and that prospective audience’s willingness to play the role. Asking government to use regulation to make categorical decisions for all of society is substituting centralized evaluation of the costs and benefits of access to communications for the individual decisions of many actors. Rather than incremental decisions regarding how and under what terms individuals may relate to one another—which can evolve over time in response to changes in what individuals find acceptable—government by its nature can only hand down categorical guidelines: “you must allow x, y, and z speech.”

This is particularly relevant in the sphere of social media. Social-media companies are multi-sided platforms. They are profit-seeking, to be sure, but the way they generate profits is by acting as intermediaries between users and advertisers. If they fail to serve their users well, those users could abandon the platform. Without users, advertisers would have no interest in buying ads. And without advertisers, there is no profit to be made. Social-media companies thus need to maximize the value of their platform by setting rules that keep users engaged.

In the cases of Facebook, Twitter, and YouTube, the platforms have set content-moderation standards that restrict many kinds of speech that are generally viewed negatively by users, even if the First Amendment would foreclose the government from regulating those same types of content. This is a good thing. Social-media companies balance the speech interests of different kinds of users to maximize the value of the platform and, in turn, to maximize benefits to all.

Herein lies the fundamental difference between private action and state action: one is voluntary, and the other based on coercion. If Facebook or Twitter suspends a user for violating community rules, it represents termination of a previously voluntary association. If the government kicks someone out of a public forum for expressing legal speech, that is coercion. The state-action doctrine recognizes this fundamental difference and creates a bright-line rule that courts may police when it comes to speech claims. As Sowell put it:

The courts’ role as watchdogs patrolling the boundaries of governmental power is essential in order that others may be secure and free on the other side of those boundaries. But what makes watchdogs valuable is precisely their ability to distinguish those people who are to be kept at bay and those who are to be left alone. A watchdog who could not make that distinction would not be a watchdog at all, but simply a general menace.

Knowledge and Decisions, p. 244

Markets Produce the Best Moderation Policies

The First Amendment also protects the right of editorial discretion, which means publishers, platforms, and other speakers are free from carrying or transmitting government-compelled speech. Even a newspaper with near-monopoly power cannot be compelled by a right-of-reply statute to carry responses by political candidates to editorials it has published. In other words, not only is private regulation of speech not state action, but in many cases, private regulation is protected by the First Amendment.

There is no reason to think that social-media companies today are in a different position than was the newspaper in Miami Herald v. Tornillo. These companies must determine what, how, and where content is presented within their platform. While this right of editorial discretion protects the moderation decisions of social-media companies, its benefits accrue to society at-large.

Social-media companies’ abilities to differentiate themselves based on functionality and moderation policies are important aspects of competition among them. How each platform is used may differ depending on those factors. In fact, many consumers use multiple social-media platforms throughout the day for different purposes. Market competition, not government power, has enabled internet users (including conservatives!) to have more avenues than ever to get their message out.

Many conservatives remain unpersuaded by the power of markets in this case. They see multiple platforms all engaging in very similar content-moderation policies when it comes to certain touchpoint issues, and thus allege widespread anti-conservative bias and collusion. Neither of those claims have much factual support, but more importantly, the similarity of content-moderation standards may simply be common responses to similar demand structures—not some nefarious and conspiratorial plot.

In other words, if social-media users demand less of the kinds of content commonly considered to be hate speech, or less misinformation on certain important issues, platforms will do their best to weed those things out. Platforms won’t always get these determinations right, but it is by no means clear that forcing them to carry all “legal” speech—which would include not just misinformation and hate speech, but pornographic material, as well—would better serve social-media users. There are always alternative means to debate contestable issues of the day, even if it may be more costly to access them.

Indeed, that content-moderation policies make it more difficult to communicate some messages is precisely the point of having them. There is a subset of protected speech to which many users do not wish to be subject. Moreover, there is no inherent right to have an audience on a social-media platform.

Conclusion

Much of the First Amendment’s economic value lies in how it defines roles in the market for speech. As a general matter, it is not the government’s place to determine what speech should be allowed in private spaces. Instead, the private ordering of speech emerges through the application of social mores and property rights. This benefits society, as it allows individuals to create voluntary relationships built on marginal decisions about what speech is acceptable when and where, rather than centralized decisions made by a governing few and that are difficult to change over time.

In what has become regularly scheduled programming on Capitol Hill, Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey, and Google CEO Sundar Pichai will be subject to yet another round of congressional grilling—this time, about the platforms’ content-moderation policies—during a March 25 joint hearing of two subcommittees of the House Energy and Commerce Committee.

The stated purpose of this latest bit of political theatre is to explore, as made explicit in the hearing’s title, “social media’s role in promoting extremism and misinformation.” Specific topics are expected to include proposed changes to Section 230 of the Communications Decency Act, heightened scrutiny by the Federal Trade Commission, and misinformation about COVID-19—the subject of new legislation introduced by Rep. Jennifer Wexton (D-Va.) and Sen. Mazie Hirono (D-Hawaii).

But while many in the Democratic majority argue that social media companies have not done enough to moderate misinformation or hate speech, it is a problem with no realistic legal fix. Any attempt to mandate removal of speech on grounds that it is misinformation or hate speech, either directly or indirectly, would run afoul of the First Amendment.

Much of the recent focus has been on misinformation spread on social media about the 2020 election and the COVID-19 pandemic. The memorandum for the March 25 hearing sums it up:

Facebook, Google, and Twitter have long come under fire for their role in the dissemination and amplification of misinformation and extremist content. For instance, since the beginning of the coronavirus disease of 2019 (COVID-19) pandemic, all three platforms have spread substantial amounts of misinformation about COVID-19. At the outset of the COVID-19 pandemic, disinformation regarding the severity of the virus and the effectiveness of alleged cures for COVID-19 was widespread. More recently, COVID-19 disinformation has misrepresented the safety and efficacy of COVID-19 vaccines.

Facebook, Google, and Twitter have also been distributors for years of election disinformation that appeared to be intended either to improperly influence or undermine the outcomes of free and fair elections. During the November 2016 election, social media platforms were used by foreign governments to disseminate information to manipulate public opinion. This trend continued during and after the November 2020 election, often fomented by domestic actors, with rampant disinformation about voter fraud, defective voting machines, and premature declarations of victory.

It is true that, despite social media companies’ efforts to label and remove false content and bar some of the biggest purveyors, there remains a considerable volume of false information on social media. But U.S. Supreme Court precedent consistently has limited government regulation of false speech to distinct categories like defamation, perjury, and fraud.

The Case of Stolen Valor

The court’s 2011 decision in United States v. Alvarez struck down as unconstitutional the Stolen Valor Act of 2005, which made it a federal crime to falsely claim to have earned a military medal. A four-justice plurality opinion written by Justice Anthony Kennedy, along with a two-justice concurrence, both agreed that a statement being false did not, by itself, exclude it from First Amendment protection. 

Kennedy’s opinion noted that while the government may impose penalties for false speech connected with the legal process (perjury or impersonating a government official); with receiving a benefit (fraud); or with harming someone’s reputation (defamation); the First Amendment does not sanction penalties for false speech, in and of itself. The plurality exhibited particular skepticism toward the notion that government actors could be entrusted as a “Ministry of Truth,” empowered to determine what categories of false speech should be made illegal:

Permitting the government to decree this speech to be a criminal offense, whether shouted from the rooftops or made in a barely audible whisper, would endorse government authority to compile a list of subjects about which false statements are punishable. That governmental power has no clear limiting principle. Our constitutional tradition stands against the idea that we need Oceania’s Ministry of Truth… Were this law to be sustained, there could be an endless list of subjects the National Government or the States could single out… Were the Court to hold that the interest in truthful discourse alone is sufficient to sustain a ban on speech, absent any evidence that the speech was used to gain a material advantage, it would give government a broad censorial power unprecedented in this Court’s cases or in our constitutional tradition. The mere potential for the exercise of that power casts a chill, a chill the First Amendment cannot permit if free speech, thought, and discourse are to remain a foundation of our freedom. [EMPHASIS ADDED]

As noted in the opinion, declaring false speech illegal constitutes a content-based restriction subject to “exacting scrutiny.” Applying that standard, the court found “the link between the Government’s interest in protecting the integrity of the military honors system and the Act’s restriction on the false claims of liars like respondent has not been shown.” 

While finding that the government “has not shown, and cannot show, why counterspeech would not suffice to achieve its interest,” the plurality suggested a more narrowly tailored solution could be simply to publish Medal of Honor recipients in an online database. In other words, the government could overcome the problem of false speech by promoting true speech. 

In 2012, President Barack Obama signed an updated version of the Stolen Valor Act that limited its penalties to situations where a misrepresentation is shown to result in receipt of some kind of benefit. That places the false speech in the category of fraud, consistent with the Alvarez opinion.

A Social Media Ministry of Truth

Applying the Alvarez standard to social media, the government could (and already does) promote its interest in public health or election integrity by publishing true speech through official channels. But there is little reason to believe the government at any level could regulate access to misinformation. Anything approaching an outright ban on accessing speech deemed false by the government not only would not be the most narrowly tailored way to deal with such speech, but it is bound to have chilling effects even on true speech.

The analysis doesn’t change if the government instead places Big Tech itself in the position of Ministry of Truth. Some propose making changes to Section 230, which currently immunizes social media companies from liability for user speech (with limited exceptions), regardless what moderation policies the platform adopts. A hypothetical change might condition Section 230’s liability shield on platforms agreeing to moderate certain categories of misinformation. But that would still place the government in the position of coercing platforms to take down speech. 

Even the “fix” of making social media companies liable for user speech they amplify through promotions on the platform, as proposed by Sen. Mark Warner’s (D-Va.) SAFE TECH Act, runs into First Amendment concerns. The aim of the bill is to regard sponsored content as constituting speech made by the platform, thus opening the platform to liability for the underlying misinformation. But any such liability also would be limited to categories of speech that fall outside First Amendment protection, like fraud or defamation. This would not appear to include most of the types of misinformation on COVID-19 or election security that animate the current legislative push.

There is no way for the government to regulate misinformation, in and of itself, consistent with the First Amendment. Big Tech companies are free to develop their own policies against misinformation, but the government may not force them to do so. 

Extremely Limited Room to Regulate Extremism

The Big Tech CEOs are also almost certain to be grilled about the use of social media to spread “hate speech” or “extremist content.” The memorandum for the March 25 hearing sums it up like this:

Facebook executives were repeatedly warned that extremist content was thriving on their platform, and that Facebook’s own algorithms and recommendation tools were responsible for the appeal of extremist groups and divisive content. Similarly, since 2015, videos from extremists have proliferated on YouTube; and YouTube’s algorithm often guides users from more innocuous or alternative content to more fringe channels and videos. Twitter has been criticized for being slow to stop white nationalists from organizing, fundraising, recruiting and spreading propaganda on Twitter.

Social media has often played host to racist, sexist, and other types of vile speech. While social media companies have community standards and other policies that restrict “hate speech” in some circumstances, there is demand from some public officials that they do more. But under a First Amendment analysis, regulating hate speech on social media would fare no better than the regulation of misinformation.

The First Amendment doesn’t allow for the regulation of “hate speech” as its own distinct category. Hate speech is, in fact, as protected as any other type of speech. There are some limited exceptions, as the First Amendment does not protect incitement, true threats of violence, or “fighting words.” Some of these flatly do not apply in the online context. “Fighting words,” for instance, applies only in face-to-face situations to “those personally abusive epithets which, when addressed to the ordinary citizen, are, as a matter of common knowledge, inherently likely to provoke violent reaction.”

One relevant precedent is the court’s 1992 decision in R.A.V. v. St. Paul, which considered a local ordinance in St. Paul, Minnesota, prohibiting public expressions that served to cause “outrage, alarm, or anger with respect to racial, gender or religious intolerance.” A juvenile was charged with violating the ordinance when he created a makeshift cross and lit it on fire in front of a black family’s home. The court unanimously struck down the ordinance as a violation of the First Amendment, finding it an impermissible content-based restraint that was not limited to incitement or true threats.

By contrast, in 2003’s Virginia v. Black, the Supreme Court upheld a Virginia law outlawing cross burnings done with the intent to intimidate. The court’s opinion distinguished R.A.V. on grounds that the Virginia statute didn’t single out speech regarding disfavored topics. Instead, it was aimed at speech that had the intent to intimidate regardless of the victim’s race, gender, religion, or other characteristic. But the court was careful to limit government regulation of hate speech to instances that involve true threats or incitement.

When it comes to incitement, the legal standard was set by the court’s landmark Brandenberg v. Ohio decision in 1969, which laid out that:

the constitutional guarantees of free speech and free press do not permit a State to forbid or proscribe advocacy of the use of force or of law violation except where such advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action. [EMPHASIS ADDED]

In other words, while “hate speech” is protected by the First Amendment, specific types of speech that convey true threats or fit under the related doctrine of incitement are not. The government may regulate those types of speech. And they do. In fact, social media users can be, and often are, charged with crimes for threats made online. But the government can’t issue a per se ban on hate speech or “extremist content.”

Just as with misinformation, the government also can’t condition Section 230 immunity on platforms removing hate speech. Insofar as speech is protected under the First Amendment, the government can’t specifically condition a government benefit on its removal. Even the SAFE TECH Act’s model for holding platforms accountable for amplifying hate speech or extremist content would have to be limited to speech that amounts to true threats or incitement. This is a far narrower category of hateful speech than the examples that concern legislators. 

Social media companies do remain free under the law to moderate hateful content as they see fit under their terms of service. Section 230 immunity is not dependent on whether companies do or don’t moderate such content, or on how they define hate speech. But government efforts to step in and define hate speech would likely run into First Amendment problems unless they stay focused on unprotected threats and incitement.

What Can the Government Do?

One may fairly ask what it is that governments can do to combat misinformation and hate speech online. The answer may be a law that requires takedowns by court order of speech after it is declared illegal, as proposed by the PACT Act, sponsored in the last session by Sens. Brian Schatz (D-Hawaii) and John Thune (R-S.D.). Such speech may, in some circumstances, include misinformation or hate speech.

But as outlined above, the misinformation that the government can regulate is limited to situations like fraud or defamation, while the hate speech it can regulate is limited to true threats and incitement. A narrowly tailored law that looked to address those specific categories may or may not be a good idea, but it would likely survive First Amendment scrutiny, and may even prove a productive line of discussion with the tech CEOs.

Amazingly enough, at a time when legislative proposals for new antitrust restrictions are rapidly multiplying—see the Competition and Antitrust Law Enforcement Reform Act (CALERA), for example—Congress simultaneously is seriously considering granting antitrust immunity to a price-fixing cartel among members of the newsmedia. This would thereby authorize what the late Justice Antonin Scalia termed “the supreme evil of antitrust: collusion.” What accounts for this bizarre development?

Discussion

The antitrust exemption in question, embodied in the Journalism Competition and Preservation Act of 2021, was introduced March 10 simultaneously in the U.S. House and Senate. The press release announcing the bill’s introduction portrayed it as a “good government” effort to help struggling newspapers in their negotiations with large digital platforms, and thereby strengthen American democracy:

We must enable news organizations to negotiate on a level playing field with the big tech companies if we want to preserve a strong and independent press[.] …

A strong, diverse, free press is critical for any successful democracy. …

Nearly 90 percent of Americans now get news while on a smartphone, computer, or tablet, according to a Pew Research Center survey conducted last year, dwarfing the number of Americans who get news via television, radio, or print media. Facebook and Google now account for the vast majority of online referrals to news sources, with the two companies also enjoying control of a majority of the online advertising market. This digital ad duopoly has directly contributed to layoffs and consolidation in the news industry, particularly for local news.

This legislation would address this imbalance by providing a safe harbor from antitrust laws so publishers can band together to negotiate with large platforms. It provides a 48-month window for companies to negotiate fair terms that would flow subscription and advertising dollars back to publishers, while protecting and preserving Americans’ right to access quality news. These negotiations would strictly benefit Americans and news publishers at-large; not just one or a few publishers.

The Journalism Competition and Preservation Act only allows coordination by news publishers if it (1) directly relates to the quality, accuracy, attribution or branding, and interoperability of news; (2) benefits the entire industry, rather than just a few publishers, and are non-discriminatory to other news publishers; and (3) is directly related to and reasonably necessary for these negotiations.

Lurking behind this public-spirited rhetoric, however, is the specter of special interest rent seeking by powerful media groups, as discussed in an insightful article by Thom Lambert. The newspaper industry is indeed struggling, but that is true overseas as well as in the United States. Competition from internet websites has greatly reduced revenues from classified and non-classified advertising. As Lambert notes, in “light of the challenges the internet has created for their advertising-focused funding model, newspapers have sought to employ the government’s coercive power to increase their revenues.”

In particular, media groups have successfully lobbied various foreign governments to impose rules requiring that Google and Facebook pay newspapers licensing fees to display content. The Australian government went even further by mandating that digital platforms share their advertising revenue with news publishers and give the publishers advance notice of any algorithm changes that could affect page rankings and displays. Media rent-seeking efforts took a different form in the United States, as Lambert explains (citations omitted):

In the United States, news publishers have sought to extract rents from digital platforms by lobbying for an exemption from the antitrust laws. Their efforts culminated in the introduction of the Journalism Competition and Preservation Act of 2018. According to a press release announcing the bill, it would allow “small publishers to band together to negotiate with dominant online platforms to improve the access to and the quality of news online.” In reality, the bill would create a four-year safe harbor for “any print or digital news organization” to jointly negotiate terms of trade with Google and Facebook. It would not apply merely to “small publishers” but would instead immunize collusive conduct by such major conglomerates as Murdoch’s News Corporation, the Walt Disney Corporation, the New York Times, Gannet Company, Bloomberg, Viacom, AT&T, and the Fox Corporation. The bill would permit news organizations to fix prices charged to digital platforms as long as negotiations with the platforms were not limited to price, were not discriminatory toward similarly situated news organizations, and somehow related to “the quality, accuracy, attribution or branding, and interoperability of news.” Given the ease of meeting that test—since news organizations could always claim that higher payments were necessary to ensure journalistic quality—the bill would enable news publishers in the United States to extract rents via collusion rather than via direct government coercion, as in Australia.

The 2021 version of the JCPA is nearly identical to the 2018 version discussed by Thom. The only substantive change is that the 2021 version strengthens the pro-cartel coalition by adding broadcasters (it applies to “any print, broadcast, or news organization”). While the JCPA plainly targets Facebook and Google (“online content distributors” with “not fewer than 1,000,000,000 monthly active users, in the aggregate, on its website”), Microsoft President Brad Smith noted in a March 12 House Antitrust Subcommittee Hearing on the bill that his company would also come under its collective-bargaining terms. Other online distributors could eventually become subject to the proposed law as well.

Purported justifications for the proposal were skillfully skewered by John Yun in a 2019 article on the substantively identical 2018 JCPA. Yun makes several salient points. First, the bill clearly shields price fixing. Second, the claim that all news organizations (in particular, small newspapers) would receive the same benefit from the bill rings hollow. The bill’s requirement that negotiations be “nondiscriminatory as to similarly situated news content creators” (emphasis added) would allow the cartel to negotiate different terms of trade for different “tiers” of organizations. Thus The New York Times and The Washington Post, say, might be part of a top tier getting the most favorable terms of trade. Third, the evidence does not support the assertion that Facebook and Google are monopolistic gateways for news outlets.

Yun concludes by summarizing the case against this legislation (citations omitted):

Put simply, the impact of the bill is to legalize a media cartel. The bill expressly allows the cartel to fix the price and set the terms of trade for all market participants. The clear goal is to transfer surplus from online platforms to news organizations, which will likely result in higher content costs for these platforms, as well as provisions that will stifle the ability to innovate. In turn, this could negatively impact quality for the users of these platforms.

Furthermore, a stated goal of the bill is to promote “quality” news and to “highlight trusted brands.” These are usually antitrust code words for favoring one group, e.g., those that are part of the News Media Alliance, while foreclosing others who are not “similarly situated.” What about the non-discrimination clause? Will it protect non-members from foreclosure? Again, a careful reading of the bill raises serious questions as to whether it will actually offer protection. The bill only ensures that the terms of the negotiations are available to all “similarly situated” news organizations. It is very easy to carve out provisions that would favor top tier members of the media cartel.

Additionally, an unintended consequence of antitrust exemptions can be that it makes the beneficiaries lax by insulating them from market competition and, ultimately, can harm the industry by delaying inevitable and difficult, but necessary, choices. There is evidence that this is what occurred with the Newspaper Preservation Act of 1970, which provided antitrust exemption to geographically proximate newspapers for joint operations.

There are very good reasons why antitrust jurisprudence reserves per se condemnation to the most egregious anticompetitive acts including the formation of cartels. Legislative attempts to circumvent the federal antitrust laws should be reserved solely for the most compelling justifications. There is little evidence that this level of justification has been met in this present circumstance.

Conclusion

Statutory exemptions to the antitrust laws have long been disfavored, and with good reason. As I explained in my 2005 testimony before the Antitrust Modernization Commission, such exemptions tend to foster welfare-reducing output restrictions. Also, empirical research suggests that industries sheltered from competition perform less well than those subject to competitive forces. In short, both economic theory and real-world data support a standard that requires proponents of an exemption to bear the burden of demonstrating that the exemption will benefit consumers.

This conclusion applies most strongly when an exemption would specifically authorize hard-core price fixing, as in the case with the JCPA. What’s more, the bill’s proponents have not borne the burden of justifying their pro-cartel proposal in economic welfare terms—quite the opposite. Lambert’s analysis exposes this legislation as the product of special interest rent seeking that has nothing to do with consumer welfare. And Yun’s evaluation of the bill clarifies that, not only would the JCPA foster harmful collusive pricing, but it would also harm its beneficiaries by allowing them to avoid taking steps to modernize and render themselves more efficient competitors.

In sum, though the JCPA claims to fly a “public interest” flag, it is just another private interest bill promoted by well-organized rent seekers would harm consumer welfare and undermine innovation.

The Federal Trade Commission and 46 state attorneys general (along with the District of Columbia and the Territory of Guam) filed their long-awaited complaints against Facebook Dec. 9. The crux of the arguments in both lawsuits is that Facebook pursued a series of acquisitions over the past decade that aimed to cement its prominent position in the “personal social media networking” market. 

Make no mistake, if successfully prosecuted, these cases would represent one of the most fundamental shifts in antitrust law since passage of the Hart-Scott-Rodino Act in 1976. That law required antitrust authorities to be notified of proposed mergers and acquisitions that exceed certain value thresholds, essentially shifting the paradigm for merger enforcement from ex-post to ex-ante review.

While the prevailing paradigm does not explicitly preclude antitrust enforcers from taking a second bite of the apple via ex-post enforcement, it has created an assumption among that regulatory clearance of a merger makes subsequent antitrust proceedings extremely unlikely. 

Indeed, the very point of ex-ante merger regulations is that ex-post enforcement, notably in the form of breakups, has tremendous social costs. It can scupper economies of scale and network effects on which both consumers and firms have come to rely. Moreover, the threat of costly subsequent legal proceedings will hang over firms’ pre- and post-merger investment decisions, and may thus reduce incentives to invest.

With their complaints, the FTC and state AGs threaten to undo this status quo. Even if current antitrust law allows it, pursuing this course of action threatens to quash the implicit assumption that regulatory clearance generally shields a merger from future antitrust scrutiny. Ex-post review of mergers and acquisitions does also entail some positive features, but the Facebook complaints fail to consider these complicated trade-offs. This oversight could hamper tech and other U.S. industries.

Mergers and uncertainty

Merger decisions are probabilistic. Of the thousands of corporate acquisitions each year, only a handful end up deemed “successful.” These relatively few success stories have to pay for the duds in order to preserve the incentive to invest.

Switching from ex-ante to ex-post review enables authorities to focus their attention on the most lucrative deals. It stands to reason that they will not want to launch ex-post antitrust proceedings against bankrupt firms whose assets have already been stripped. Instead, as with the Facebook complaint, authorities are far more likely to pursue high-profile cases that boost their political capital.

This would be unproblematic if:

  1. Authorities would commit to ex-post prosecution only of anticompetitive mergers; and
  2. If parties could reasonably anticipate whether their deals would be deemed anticompetitive in the future. 

If those were the conditions, ex-post enforcement would merely reduce the incentive to partake in problematic mergers. It would leave welfare-enhancing deals unscathed. But where firms could not have ex-ante knowledge that a given deal would be deemed anticompetitive, the associated error-costs should weigh against prosecuting such mergers ex post, even if such enforcement might appear desirable. The deterrent effect that would arise from such prosecutions would be applied by the market to all mergers, including efficient ones. Put differently, authorities might get the ex-post assessment right in one case, such as the Facebook proceedings, but the bigger picture remains that they could be wrong in many other cases. Firms will perceive this threat and it may hinder their investments.

There is also reason to doubt that either of the ideal conditions for ex-post enforcement could realistically be met in practice.Ex-ante merger proceedings involve significant uncertainty. Indeed, antitrust-merger clearance decisions routinely have an impact on the merging parties’ stock prices. If management and investors knew whether their transactions would be cleared, those effects would be priced-in when a deal is announced, not when it is cleared or blocked. Indeed, if firms knew a given merger would be blocked, they would not waste their resources pursuing it. This demonstrates that ex-ante merger proceedings involve uncertainty for the merging parties.

Unless the answer is markedly different for ex-post merger reviews, authorities should proceed with caution. If parties cannot properly self-assess their deals, the threat of ex-post proceedings will weigh on pre- and post-merger investments (a breakup effectively amounts to expropriating investments that are dependent upon the divested assets). 

Furthermore, because authorities will likely focus ex-post reviews on the most lucrative deals, their incentive effects can be particularly pronounced. Parties may fear that the most successful mergers will be broken up. This could have wide-reaching effects for all merging firms that do not know whether they might become “the next Facebook.” 

Accordingly, for ex-post merger reviews to be justified, it is essential that:

  1. Their outcomes be predictable for the parties; and that 
  2. Analyzing the deals after the fact leads to better decision-making (fewer false acquittals and convictions) than ex-ante reviews would yield.

If these conditions are not in place, ex-post assessments will needlessly weigh down innovation, investment and procompetitive merger activity in the economy.

Hindsight does not disentangle efficiency from market power

So, could ex-post merger reviews be so predictable and effective as to alleviate the uncertainties described above, along with the costs they entail? 

Based on the recently filed Facebook complaints, the answer appears to be no. We simply do not know what the counterfactual to Facebook’s acquisitions of Instagram and WhatsApp would look like. Hindsight does not tell us whether Facebook’s acquisitions led to efficiencies that allowed it to thrive (a pro-competitive scenario), or whether Facebook merely used these deals to kill off competitors and maintain its monopoly (an anticompetitive scenario).

As Sam Bowman and I have argued elsewhere, when discussing the leaked emails that spurred the current proceedings and on which the complaints rely heavily:

These email exchanges may not paint a particularly positive picture of Zuckerberg’s intent in doing the merger, and it is possible that at the time they may have caused antitrust agencies to scrutinise the merger more carefully. But they do not tell us that the acquisition was ultimately harmful to consumers, or about the counterfactual of the merger being blocked. While we know that Instagram became enormously popular in the years following the merger, it is not clear that it would have been just as successful without the deal, or that Facebook and its other products would be less popular today. 

Moreover, it fails to account for the fact that Facebook had the resources to quickly scale Instagram up to a level that provided immediate benefits to an enormous number of users, instead of waiting for the app to potentially grow to such scale organically.

In fact, contrary to what some have argued, hindsight might even complicate matters (again from Sam and me):

Today’s commentators have the benefit of hindsight. This inherently biases contemporary takes on the Facebook/Instagram merger. For instance, it seems almost self-evident with hindsight that Facebook would succeed and that entry in the social media space would only occur at the fringes of existing platforms (the combined Facebook/Instagram platform) – think of the emergence of TikTok. However, at the time of the merger, such an outcome was anything but a foregone conclusion.

In other words, ex-post reviews will, by definition, focus on mergers where today’s outcomes seem preordained — when, in fact, they were probabilistic. This will skew decisions toward finding anticompetitive conduct. If authorities think that Instagram was destined to become great, they are more likely to find that Facebook’s acquisition was anticompetitive because they implicitly dismiss the idea that it was the merger itself that made Instagram great.

Authorities might also confuse correlation for causality. For instance, the state AGs’ complaint ties Facebook’s acquisitions of Instagram and WhatsApp to the degradation of these services, notably in terms of privacy and advertising loads. As the complaint lays out:

127. Following the acquisition, Facebook also degraded Instagram users’ privacy by matching Instagram and Facebook Blue accounts so that Facebook could use information that users had shared with Facebook Blue to serve ads to those users on Instagram. 

180. Facebook’s acquisition of WhatsApp thus substantially lessened competition […]. Moreover, Facebook’s subsequent degradation of the acquired firm’s privacy features reduced consumer choice by eliminating a viable, competitive, privacy-focused option

But these changes may have nothing to do with Facebook’s acquisition of these services. At the time, nearly all tech startups focused on growth over profits in their formative years. It should be no surprise that the platforms imposed higher “prices” to users after their acquisition by Facebook; they were maturing. Further monetizing their platform would have been the logical next step, even absent the mergers.

It is just as hard to determine whether post-merger developments actually harmed consumers. For example, the FTC complaint argues that Facebook stopped developing its own photo-sharing capabilities after the Instagram acquisition,which the commission cites as evidence that the deal neutralized a competitor:

98. Less than two weeks after the acquisition was announced, Mr. Zuckerberg suggested canceling or scaling back investment in Facebook’s own mobile photo app as a direct result of the Instagram deal.

But it is not obvious that Facebook or consumers would have gained anything from the duplication of R&D efforts if Facebook continued to develop its own photo-sharing app. More importantly, this discontinuation is not evidence that Instagram could have overthrown Facebook. In other words, the fact that Instagram provided better photo-sharing capabilities does necessarily imply that it could also provide a versatile platform that posed a threat to Facebook.

Finally, if Instagram’s stellar growth and photo-sharing capabilities were certain to overthrow Facebook’s monopoly, why do the plaintiffs ignore the competitive threat posed by the likes of TikTok today? Neither of the complaints makes any mention of TikTok,even though it currently has well over 1 billion monthly active users. The FTC and state AGs would have us believe that Instagram posed an existential threat to Facebook in 2012 but that Facebook faces no such threat from TikTok today. It is exceedingly unlikely that both these statements could be true, yet both are essential to the plaintiffs’ case.

Some appropriate responses

None of this is to say that ex-post review of mergers and acquisitions should be categorically out of the question. Rather, such proceedings should be initiated only with appropriate caution and consideration for their broader consequences.

When undertaking reviews of past mergers, authorities do  not necessarily need to impose remedies every time they find a merger was wrongly cleared. The findings of these ex-post reviews could simply be used to adjust existing merger thresholds and presumptions. This would effectively create a feedback loop where false acquittals lead to meaningful policy reforms in the future. 

At the very least, it may be appropriate for policymakers to set a higher bar for findings of anticompetitive harm and imposition of remedies in such cases. This would reduce the undesirable deterrent effects that such reviews may otherwise entail, while reserving ex-post remedies for the most problematic cases.

Finally, a tougher system of ex-post review could be used to allow authorities to take more risks during ex-ante proceedings. Indeed, when in doubt, they could effectively  experiment by allowing  marginal mergers to proceed, with the understanding that bad decisions could be clawed back afterwards. In that regard, it might also be useful to set precise deadlines for such reviews and to outline the types of concerns that might prompt scrutiny  or warrant divestitures.

In short, some form of ex-post review may well be desirable. It could help antitrust authorities to learn what works and subsequently to make useful changes to ex-ante merger-review systems. But this would necessitate deep reflection on the many ramifications of ex-post reassessments. Legislative reform or, at the least, publication of guidance documents by authorities, seem like essential first steps. 

Unfortunately, this is the exact opposite of what the Facebook proceedings would achieve. Plaintiffs have chosen to ignore these complex trade-offs in pursuit of a case with extremely dubious underlying merits. Success for the plaintiffs would thus prove a pyrrhic victory, destroying far more than it intends to achieve.

Recently-published emails from 2012 between Mark Zuckerberg and Facebook’s then-Chief Financial Officer David Ebersman, in which Zuckerberg lays out his rationale for buying Instagram, have prompted many to speculate that the deal may not have been cleared had antitrust agencies had had access to Facebook’s internal documents at the time.

The issue is Zuckerberg’s description of Instagram as a nascent competitor and potential threat to Facebook:

These businesses are nascent but the networks established, the brands are already meaningful, and if they grow to a large scale they could be very disruptive to us. Given that we think our own valuation is fairly aggressive and that we’re vulnerable in mobile, I’m curious if we should consider going after one or two of them. 

Ebersman objects that a new rival would just enter the market if Facebook bought Instagram. In response, Zuckerberg wrote:

There are network effects around social products and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it’s difficult for others to supplant them without doing something different.

These email exchanges may not paint a particularly positive picture of Zuckerberg’s intent in doing the merger, and it is possible that at the time they may have caused antitrust agencies to scrutinise the merger more carefully. But they do not tell us that the acquisition was ultimately harmful to consumers, or about the counterfactual of the merger being blocked. While we know that Instagram became enormously popular in the years following the merger, it is not clear that it would have been just as successful without the deal, or that Facebook and its other products would be less popular today. 

Moreover, it fails to account for the fact that Facebook had the resources to quickly scale Instagram up to a level that provided immediate benefits to an enormous number of users, instead of waiting for the app to potentially grow to such scale organically. 

The rationale

Writing for Pro Market, Randy Picker argued that these emails hint that the acquisition was essentially about taking out a nascent competitor:

Buying Instagram really was about controlling the window in which the Instagram social mechanic invention posed a risk to Facebook … Facebook well understood the competitive risk posed by Instagram and how purchasing it would control that risk.

This is a plausible interpretation of the internal emails, although there are others. For instance, Zuckerberg also seems to say that the purpose is to use Instagram to improve Facebook to make it good enough to fend off other entrants:

If we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale. 

If this was the rationale, rather than simply trying to kill a nascent competitor, it would be pro-competitive. It is good for consumers if a product makes itself better to beat its rivals by acquiring undervalued assets to deploy them at greater scale and with superior managerial efficiency, even if the acquirer hopes that in doing so it will prevent rivals from ever gaining significant market share. 

Further, despite popular characterization, on its face the acquisition was not about trying to destroy a consumer option, but only to ensure that Facebook was competitively viable in providing that option. Another reasonable interpretation of the emails is that Facebook was wrestling with the age-old make-or-buy dilemma faced by every firm at some point or another. 

Was the merger anticompetitive?

But let us assume that eliminating competition from Instagram was indeed the merger’s sole rationale. Would that necessarily make it anticompetitive?  

Chief among the objections is that both Facebook and Instagram are networked goods. Their value to each user depends, to a significant extent, on the number (and quality) of other people using the same platform. Many scholars have argued that this can create self-reinforcing dynamics where the strong grow stronger – though such an outcome is certainly not a given, since other factors about the service matter too, and networks can suffer from diseconomies of scale as well, where new users reduce the quality of the network.

This network effects point is central to the reasoning of those who oppose the merger: Facebook purportedly acquired Instagram because Instagram’s network had grown large enough to be a threat. With Instagram out of the picture, Facebook could thus take on the remaining smaller rivals with the advantage of its own much larger installed base of users. 

However, this network tipping argument could cut both ways. It is plausible that the proper counterfactual was not duopoly competition between Facebook and Instagram, but either Facebook or Instagram offering both firms’ features (only later). In other words, a possible framing of the merger is that it merely  accelerated the cross-pollination of social mechanics between Facebook and Instagram. Something that would likely prove beneficial to consumers.

This finds some support in Mark Zuckerberg’s reply to David Ebersman:

Buying them would give us the people and time to integrate their innovations into our core products.

The exchange between Zuckerberg and Ebersman also suggests another pro-competitive justification: bringing Instagram’s “social mechanics” to Facebook’s much larger network of users. We can only speculate about what ‘social mechanics’ Zuckerberg actually had in mind, but at the time Facebook’s photo sharing functionality was largely based around albums of unedited photos, whereas Instagram’s core product was a stream of filtered, cropped single images. 

Zuckerberg’s plan to gradually bring these features to Facebook’s users – as opposed to them having to familiarize themselves with an entirely different platform – would likely cut in favor of the deal being cleared by enforcers.

Another possibility is that it was Instagram’s network of creators – the people who had begun to use Instagram as a new medium, distinct from the generic photo albums Facebook had, and who would eventually grow to be known as ‘influencers’ – who were the valuable thing. Bringing them onto the Facebook platform would undoubtedly increase its value to regular users. For example, Kim Kardashian, one of Instagram’s most popular users, joined the service in February 2012, two months before the deal went through, and she was not the first such person to adopt Instagram in this way. We can see the importance of a service’s most creative users today, as Facebook is actually trying to pay TikTok creators to move to its TikTok clone Reels.

But if this was indeed the rationale, not only is this a sign of a company in the midst of fierce competition – rather than one on the cusp of acquiring a monopoly position – but, more fundamentally, it suggests that Facebook was always going to come out on top. Or at least it thought so.

The benefit of hindsight

Today’s commentators have the benefit of hindsight. This inherently biases contemporary takes on the Facebook/Instagram merger. For instance, it seems almost self-evident with hindsight that Facebook would succeed and that entry in the social media space would only occur at the fringes of existing platforms (the combined Facebook/Instagram platform) – think of the emergence of TikTok. However, at the time of the merger, such an outcome was anything but a foregone conclusion.

For instance, critics argue that Instagram no longer competes with Facebook because of the merger. However, it is equally plausible that Instagram only became so successful because of its combination with Facebook (notably thanks to the addition of Facebook’s advertising platform, and the rapid rollout of a stories feature in response to Snapchat’s rise). Indeed, Instagram grew from roughly 24 million at the time of the acquisition to over 1 Billion users in 2018. Likewise, it earned zero revenue at the time of the merger. This might explain why the acquisition was widely derided at the time.

This is critical from an antitrust perspective. Antitrust enforcers adjudicate merger proceedings in the face of extreme uncertainty. All possible outcomes, including the counterfactual setting, have certain probabilities of being true that enforcers and courts have to make educated guesses about, assigning probabilities to potential anticompetitive harms, merger efficiencies, and so on.

Authorities at the time of the merger could not ignore these uncertainties. What was the likelihood that a company with a fraction of Facebook’s users (24 million to Facebook’s 1 billion), and worth $1 billion, could grow to threaten Facebook’s market position? At the time, the answer seemed to be “very unlikely”. Moreover, how could authorities know that Google+ (Facebook’s strongest competitor at the time) would fail? These outcomes were not just hard to ascertain, they were simply unknowable.

Of course, this is preceisly what neo-Brandesian antitrust scholars object to today: among the many seemingly innocuous big tech acquisitions that are permitted each year, there is bound to be at least one acquired firm that might have been a future disruptor. True as this may be, identifying that one successful company among all the others is the antitrust equivalent of finding a needle in a haystack. Instagram simply did not fit that description at the time of the merger. Such a stance also ignores the very real benefits that may arise from such arrangements.

Closing remarks

While it is tempting to reassess the Facebook Instagram merger in light of new revelations, such an undertaking is not without pitfalls. Hindsight bias is perhaps the most obvious, but the difficulties run deeper.

If we think that the Facebook/Instagram merger has been and will continue to be good for consumers, it would be strange to think that we should nevertheless break them up because we discovered that Zuckerberg had intended to do things that would harm consumers. Conversely, if you think a breakup would be good for consumers today, would it change your mind if you discovered that Mark Zuckerberg had the intentions of an angel when he went ahead with the merger in 2012, or that he had angelic intent today?

Ultimately, merger review involves making predictions about the future. While it may be reasonable to take the intentions of the merging parties into consideration when making those predictions (although it’s not obvious that we should), these are not the only or best ways to determine what the future will hold. As Ebersman himself points out in the emails, history is filled with over-optimistic mergers that failed to deliver benefits to the merging parties. That this one succeeded beyond the wildest dreams of everyone involved – except maybe Mark Zuckerberg – does not tell us that competition agencies should have ruled on it differently.

The goal of US antitrust law is to ensure that competition continues to produce positive results for consumers and the economy in general. We published a letter co-signed by twenty three of the U.S.’s leading economists, legal scholars and practitioners, including one winner of the Nobel Prize in economics (full list of signatories here), to exactly that effect urging the House Judiciary Committee on the State of Antitrust Law to reject calls for radical upheaval of antitrust law that would, among other things, undermine the independence and neutrality of US antitrust law. 

A critical part of maintaining independence and neutrality in the administration of antitrust is ensuring that it is insulated from politics. Unfortunately, this view is under attack from all sides. The President sees widespread misconduct among US tech firms that he believes are controlled by the “radical left” and is, apparently, happy to use whatever tools are at hand to chasten them. 

Meanwhile, Senator Klobuchar has claimed, without any real evidence, that the mooted Uber/Grubhub merger is simply about monopolisation of the market, and not, for example, related to the huge changes that businesses like this are facing because of the Covid shutdown.

Both of these statements challenge the principle that the rule of law depends on being politically neutral, including in antitrust. 

Our letter, contrary to the claims made by President Trump, Sen. Klobuchar and some of the claims made to the Committee, asserts that the evidence and economic theory is clear: existing antitrust law is doing a good job of promoting competition and consumer welfare in digital markets and the economy more broadly, and concludes that the Committee should focus on reforms that improve antitrust at the margin, not changes that throw out decades of practice and precedent.

The letter argues that:

  1. The American economy—including the digital sector—is competitive, innovative, and serves consumers well, contrary to how it is sometimes portrayed in the public debate. 
  2. Structural changes in the economy have resulted from increased competition, and increases in national concentration have generally happened because competition at the local level has intensified and local concentration has fallen.
  3. Lax antitrust enforcement has not allowed systematic increases in market power, and the evidence simply does not support out the idea that antitrust enforcement has weakened in recent decades.
  4. Existing antitrust law is adequate for protecting competition in the modern economy, and built up through years of careful case-by-case scrutiny. Calls to throw out decades of precedent to achieve an antitrust “Year Zero” would throw away a huge body of learning and deliberation.
  5. History teaches that discarding the modern approach to antitrust would harm consumers, and return to a situation where per se rules prohibited the use of economic analysis and fact-based defences of business practices.
  6. Common sense reforms should be pursued to improve antitrust enforcement, and the reforms proposed in the letter could help to improve competition and consumer outcomes in the United States without overturning the whole system.

The reforms suggested include measures to increase transparency of the DoJ and FTC, greater scope for antitrust challenges against state-sponsored monopolies, stronger penalties for criminal cartel conduct, and more agency resources being made available to protect workers from anti-competitive wage-fixing agreements between businesses. These are suggestions for the House Committee to consider and are not supported by all the letter’s signatories.

Some of the arguments in the letter are set out in greater detail in the ICLE’s own submission to the Committee, which goes into detail about the nature of competition in modern digital markets and in traditional markets that have been changed because of the adoption of digital technologies. 

The full letter is here.

[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.

In March of this year, Elizabeth Warren announced her proposal to break up Big Tech in a blog post on Medium. She tried to paint the tech giants as dominant players crushing their smaller competitors and strangling the open internet. This line in particular stood out: “More than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook.

This statistic immediately struck me as outlandish, but I knew I would need to do some digging to fact check it. After seeing the claim repeated in a recent profile of the Open Markets Institute — “Google and Facebook control websites that receive 70 percent of all internet traffic” — I decided to track down the original source for this surprising finding. 

Warren’s blog post links to a November 2017 Newsweek article — “Who Controls the Internet? Facebook and Google Dominance Could Cause the ‘Death of the Web’” — written by Anthony Cuthbertson. The piece is even more alarmist than Warren’s blog post: “Facebook and Google now have direct influence over nearly three quarters of all internet traffic, prompting warnings that the end of a free and open web is imminent.

The Newsweek article, in turn, cites an October 2017 blog post by André Staltz, an open source freelancer, on his personal website titled “The Web began dying in 2014, here’s how”. His takeaway is equally dire: “It looks like nothing changed since 2014, but GOOG and FB now have direct influence over 70%+ of internet traffic.” Staltz claims the blog post took “months of research to write”, but the headline statistic is merely aggregated from a December 2015 blog post by Parse.ly, a web analytics and content optimization software company.

Source: André Staltz

The Parse.ly article — “Facebook Continues to Beat Google in Sending Traffic to Top Publishers” — is about external referrals (i.e., outside links) to publisher sites (not total internet traffic) and says the “data set used for this study included around 400 publisher domains.” This is not even a random sample much less a comprehensive measure of total internet traffic. Here’s how they summarize their results: “Today, Facebook remains a top referring site to the publishers in Parse.ly’s network, claiming 39 percent of referral traffic versus Google’s share of 34 percent.” 

Source: Parse.ly

So, using the sources provided by the respective authors, the claim from Elizabeth Warren that “more than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook” can be more accurately rewritten as “more than 70 percent of external links to 400 publishers come from sites owned or operated by Google and Facebook.” When framed that way, it’s much less conclusive (and much less scary).

But what’s the real statistic for total internet traffic? This is a surprisingly difficult question to answer, because there is no single way to measure it: Are we talking about share of users, or user-minutes, of bits, or total visits, or unique visits, or referrals? According to Wikipedia, “Common measurements of traffic are total volume, in units of multiples of the byte, or as transmission rates in bytes per certain time units.”

One of the more comprehensive efforts to answer this question is undertaken annually by Sandvine. The networking equipment company uses its vast installed footprint of equipment across the internet to generate statistics on connections, upstream traffic, downstream traffic, and total internet traffic (summarized in the table below). This dataset covers both browser-based and app-based internet traffic, which is crucial for capturing the full picture of internet user behavior.

Source: Sandvine

Looking at two categories of traffic analyzed by Sandvine — downstream traffic and overall traffic — gives lie to the narrative pushed by Warren and others. As you can see in the chart below, HTTP media streaming — a category for smaller streaming services that Sandvine has not yet tracked individually — represented 12.8% of global downstream traffic and Netflix accounted for 12.6%. According to Sandvine, “the aggregate volume of the long tail is actually greater than the largest of the short-tail providers.” So much for the open internet being smothered by the tech giants.

Source: Sandvine

As for Google and Facebook? The report found that Google-operated sites receive 12.00 percent of total internet traffic while Facebook-controlled sites receive 7.79 percent. In other words, less than 20 percent of all Internet traffic goes through sites owned or operated by Google or Facebook. While this statistic may be less eye-popping than the one trumpeted by Warren and other antitrust activists, it does have the virtue of being true.

Source: Sandvine