[TOTM: The following is the fifth in a series of posts by TOTM guests and authors on the politicization of antitrust. The entire series of posts is available here.]
This post is authored by Ramsi Woodcock, Assistant Professor, College of Law, and Assistant Professor, Department of Management at Gatton College of Business & Economics, University of Kentucky.
When in 2011 Paul Krugman attacked
the press for bending over backwards to give equal billing to conservative
experts on social security, even though the conservatives were plainly wrong, I
celebrated. Social security isn’t the biggest part of the government’s budget,
and calls to privatize it in order to save the country from bankruptcy were blatant
mongering. Why should the press report those calls with a neutrality that
could mislead readers into thinking the position reasonable?
Journalists’ ethic of balanced reporting looked, at the time,
like gross negligence at best, and deceit at worst. But lost
in the pathos of the moment was the rationale behind that ethic, which is
not so much to ensure that the truth gets into print as to prevent the press
from making policy. For if journalists do not practice balance, then they ultimately
decide the angle to take.
And journalists, like the rest of us, will choose their own.
The dark underbelly of the engaged journalism unleashed by progressives
like Krugman has nowhere been more starkly exposed than in the unfolding
assault of journalists, operating as a special interest, on Google, Facebook,
and Amazon, three companies that writers believe have decimated
their earnings over the past decade.
In story after story, journalists have manufactured an
antitrust movement aimed at breaking up these companies, even though virtually
no expert in antitrust law or economics, on either the right or the left, can
find an antitrust case against them, and virtually no expert would place any of
these three companies at the top of the genuinely
long list of monopolies in America that are due for an antitrust reckoning.
Headlines alone tell the story. We have: “What
Happens After Amazon’s Domination Is Complete? Its Bookstore Offers Clues”;
Afraid, Jeff Bezos, Be Very Afraid”; “How
Should Big Tech Be Reined In? Here Are 4 Prominent Ideas”; “The Case
Against Google”; and “Powerful
Coalition Pushes Back on Anti-Tech Fervor.”
My favorite is: “It’s
Time to Break Up Facebook.” Unlike the others, it belongs to an Op-Ed, so a
bias is appropriate. Not appropriate, however, is the howler, contained in the
article’s body, that “a host of legal scholars like Lina Khan, Barry Lynn and
Ganesh Sitaraman are plotting a way forward” toward breakup. Lina Khan has
never held an academic appointment. Barry Lynn does not even have a law degree.
And Ganesh Sitaraman’s academic specialty is constitutional law, not antitrust.
But editors let it through anyway.
As this unguarded moment shows, the press has treated these
and other members of a small network of activists and legal scholars who
operate on antitrust’s fringes as representative of scholarly sentiment
regarding antitrust action. The only real antitrust scholar among them is Tim
Wu, who, when you look closely at his public statements, has actually gone no
further than to call for Facebook to unwind
its acquisitions of Instagram and WhatsApp.
In more sober moments, the press has acknowledged that the
law does not support antitrust attacks on the tech giants. But instead of helping
readers to understand why, the press instead presents this as a failure of the
law. “To Take Down Big Tech,” read one headline in The New York Times, “They
First Need to Reinvent the Law.” I have documented further instances of
unbalanced reporting here.
This is not to say that we don’t need more antitrust in
America. Herbert Hovenkamp, who the New York Times once recognized
as “the dean of American antitrust law,”
but has since downgraded
to “an antitrust expert” after he came out
against the breakup movement, has advocated stronger monopsony enforcement
across labor markets. Einer Elhauge at Harvard is pushing
to prevent index funds from inadvertently generating oligopolies in markets
ranging from airlines to pharmacies. NYU economist Thomas Philippon has called
for deconcentration of banking. Yale’s Fiona Morton has pointed
to rising markups across the economy as a sign of lax antitrust enforcement. Jonathan
Baker has argued with great sophistication
for more antitrust enforcement in general.
But no serious antitrust scholar has traced America’s
concentration problem to the tech giants.
Advertising monopolies old and new
So why does the press have an axe to grind with the tech
giants? The answer lies in the creative
destruction wrought by Amazon on the publishing industry, and Google and
Facebook upon the newspaper industry.
Newspapers were probably the most durable monopolies of the
20th century, so lucrative that Warren Buffett famously picked them
as his preferred example of businesses with “moats”
around them. But that wasn’t because readers were willing to pay top dollar for
newspapers’ reporting. Instead, that was because, incongruously for
organizations dedicated to exposing propaganda of all forms on their front
pages, newspapers have long
striven to fill every other available inch of newsprint with that particular
kind of corporate propaganda known as commercial advertising.
It was a lucrative arrangement. Newspapers exhibit powerful
network effects, meaning that the more people read a paper the more advertisers
want to advertise in it. As a result, many American cities came to have but one
major newspaper monopolizing
the local advertising market.
One such local paper, the Lorain Journal of Lorain, Ohio,
sparked a case
that has since become part of the standard antitrust curriculum in law schools.
The paper tried to leverage its monopoly to destroy a local radio station that
was competing for its advertising business. The Supreme Court affirmed
liability for monopolization.
In the event, neither radio nor television ultimately
undermined newspapers’ advertising monopolies. But the internet is different. Radio,
television, and newspaper advertising can coexist, because they can target only
groups, and often not the same ones, minimizing competition between them. The
internet, by contrast, reaches individuals, making it strictly superior to
group-based advertising. The internet also lets at least some firms target virtually
all individuals in the country, allowing those firms to compete with all comers.
You might think that newspapers, which quickly became an
important web destination, were perfectly positioned to exploit the new
functionality. But being a destination turned out to be a problem. Consumers
reveal far more valuable information about themselves to web gateways, like
search and social media, than to particular destinations, like newspaper
websites. But consumer data is the key to targeted advertising.
That gave Google and Facebook a competitive advantage, and
because these companies also enjoy network effects—search and social media get
better the more people use them—they inherited the newspapers’ old advertising
That was a catastrophe
for journalists, whose earnings and employment prospects plummeted.
It was also a catastrophe
for the public, because newspapers have a tradition of plowing their
monopoly profits into investigative journalism that protects democracy, whereas
Google and Facebook have instead invested their profits in new technologies
like self-driving cars and cryptocurrencies.
The catastrophe of countervailing power
Amazon has found itself in journalists’ crosshairs for
disrupting another industry that feeds writers: publishing. Book distribution
was Amazon’s first big market, and Amazon won it, driving most brick and mortar
booksellers to bankruptcy.
Publishing, long dominated
by a few big houses that used their power to extract high wholesale prices from
booksellers, some of the profit from which they passed on to authors as
royalties, now faced a distribution industry that was even more concentrated
and powerful than was publishing. The Department of Justice stamped
out a desperate attempt by publishers to cartelize in response, and profits,
and author royalties, have continued to fall.
Journalists, of course, are writers, and the disruption of
publishing, taken together with the disruption of news, have left journalists
with the impression that they have nowhere to turn to escape the new economy.
The abuse of antitrust
Unschooled in the fine points of antitrust policy, it seems
obvious to them that the Armageddon in newspapers and publishing is a problem
of monopoly and that antitrust enforcers should do something about it.
Only it isn’t and they shouldn’t. The courts have gone
over the past 130 years to distinguish between doing harm to competition, which
is prohibited by the antitrust laws, and doing harm to competitors, which is
Disrupting markets by introducing new technologies that make
products better is no
antitrust violation, even if doing so does drive legacy firms into
bankruptcy, and throws their employees out of work and into the streets.
Because disruption is really the only thing capitalism has going for it. Disruption
is the mechanism by which market economies generate technological advances and
improve living standards in the long run. The antitrust laws are not there to
preserve old monopolies and oligopolies such as those long enjoyed by
newspapers and publishers.
In fact, by tearing down barriers to market entry, the
antitrust laws strive to do the opposite: to speed the destruction and
replacement of legacy monopolies with new and more innovative ones.
That’s why the entire antitrust establishment has stayed on
the sidelines regarding the tech fight. It’s hard to think of three companies
that have more obviously risen to prominence over the past generation by
disrupting markets using superior technologies than Amazon, Google, and
Facebook. It may be possible to find an anticompetitive practice here or there—I
certainly have—but no serious antitrust scholar thinks the heart of these
firms’ continued dominance lies other than in their technical savvy. The
nuclear option of breaking up these firms just makes no sense.
Indeed, the disruption inflicted by these firms on
newspapers and publishing is a measure of the extent to which these firms have
improved book distribution and advertising, just as the vast disruption created
by the industrial revolution was a symptom of the extraordinary technological
advances of that period. Few people, and not even Karl Marx, thought that the
solution to those disruptions lay with Ned Ludd. The solution to the disruption
wrought by Google, Amazon, and Facebook today similarly does not lie in using
the antitrust laws to smash the machines.
Governments eventually learned to address the disruption
created by the original industrial revolution not by breaking up the big firms
that brought that revolution about, but by using tax and transfer, and rate
regulation, to ensure that the winners share their gains with the losers.
However the press’s campaign turns out, rate regulation, not antitrust, is
ultimately the approach that government will take to Amazon, Google, and
Facebook if these companies continue to grow in power. Because we don’t have to
decide between social justice and technological advance. We can have both. And
voters will demand it.
The anti-progress wing of the progressive movement
Alas, smashing the machines is precisely what journalists and
their supporters are demanding in calling for the breakup of Amazon, Google,
and Facebook. Zephyr Teachout, for example, recently told an audience
at Columbia Law School that she would ban targeted advertising except for
newspapers. That would restore newspapers’ old advertising monopolies, but also
make targeted advertising less effective, for the same reason that Google and
Facebook are the preferred choice of advertisers today. (Of course, making
advertising more effective might not be a good thing. More on this below.)
This contempt for technological advance has been coupled
with a broader anti-intellectualism, best captured by an extraordinary remark made
by Barry Lynn, director of the pro-breakup Open Markets Institute, and sometime
for the Author’s Guild. The Times quotes
him saying that because the antitrust laws once contained a presumption against
mergers to market shares in excess of 25%, all policymakers have to do to get
antitrust right is “be able to count to four. We don’t need economists to help
us count to four.”
But size really is not a good measure of monopoly power. Ask
Nokia, which controlled
more than half the market for cell phones in 2007, on the eve of Apple’s
introduction of the iPhone, but saw its share fall almost to zero by 2012. Or Walmart,
the nation’s largest
retailer and a monopolist in many smaller retail markets, which nevertheless
saw its stock fall
after Amazon announced one-day shipping.
Journalists themselves acknowledge
that size does not always translate into power when they wring their hands
about the Amazon-driven financial troubles of large retailers like Macy’s. Determining
whether a market lacks competition really does require more than counting the
number of big firms in the market.
I keep waiting for a devastating critique of arguments that
Amazon operates in highly competitive markets to emerge from the big tech
breakup movement. But that’s impossible for a movement that rejects economics
corporate plot. Indeed, even an economist as pro-antitrust as Thomas
Philippon, who advocates a return to antitrust’s mid-20th century
golden age of massive breakups of firms like Alcoa and AT&T, affirms
in a new book that American retail is actually a bright spot in an otherwise
But you won’t find journalists highlighting that. The
headline of a Times column promoting Philippon’s book? “Big
Business Is Overcharging you $5000 a Year.” I tend to agree. But given all
the anti-tech fervor in the press, Philippon’s chapter on why the tech giants
are probably not an antitrust problem ought to get a mention somewhere in the
column. It doesn’t.
John Maynard Keynes famously observed
that “though no one will believe it—economics is a technical and difficult
subject.” So too antitrust. A failure to appreciate the field’s technical
difficulty is manifest also in Democratic presidential candidate Elizabeth Warren’s
antitrust proposals, which were heavily
influenced by breakup advocates.
Warren has argued that no large firm should be able to compete on its own platforms, not seeming to realize that doing business means competing on your own platforms. To show up to work in the morning in your own office space is to compete on a platform, your office, from which you exclude competitors. The rule that large firms (defined by Warren as those with more than $25 billion in revenues) cannot compete on their own platforms would just make doing large amounts of business illegal, a result that Warren no doubt does not desire.
The power of the press
The press’s campaign against Amazon, Google, and Facebook is
working. Because while they may not be as well financed as Amazon, Google, or
Facebook, writers can offer their friends something more valuable than money:
That appears to have induced a slew of politicians, including
both Senator Warren on the left and Senator
Josh Hawley on the right, to pander to breakup advocates. The House
antitrust investigation into the tech giants, led by a congressman who is
by the News Media Alliance, a newspaper trade group, to give newspapers an exemption
from the antitrust laws, may also have similar roots. So too the investigations
announced by dozens of elected state attorneys general.
recently opened by the FTC and Department of Justice may signal no more than a
desire not to look idle while so many others act. Which is why the press has
the power to turn fiction into reality. Moreover, under the current
Administration, the Department of Justice has already undertaken two suspiciously
antitrust investigations, and President Trump has made clear his hatred
for the liberal bastions that are Amazon, Google and Facebook. The fact that
the press has made antitrust action against the tech giants a progressive cause
provides convenient cover for the President to take down some enemies.
The future of the news
Rate regulation of Amazon, Google, or Facebook is the likely
long-term resolution of concerns about these firms’ power. But that won’t bring
back newspapers, which henceforth will always play the loom to Google and
Facebook’s textile mills, at least in the advertising market.
Journalists and their defenders, like Teachout, have been
pushing to restore newspapers’ old monopolies by government fiat. No doubt that
would make existing newspapers, and their staffs, very happy. But what is good
for Big News is not necessarily good for journalism in the long run.
The silver lining to the disruption of newspapers’ old
advertising monopolies is that it has created an opportunity for newspapers to
wean themselves off a funding source that has always made little sense for
organizations dedicated to helping Americans make informed, independent
decisions, free of the manipulation of others.
For advertising has always had a manipulative function,
alongside its function of disseminating product information to consumers. And, as I have
argued elsewhere, now that the vast amounts
of product information available for free on the internet have made advertising
obsolete as a source of product information, manipulation is now advertising’s
only real remaining function.
Manipulation causes consumers to buy products they don’t
really want, giving firms that advertise a competitive advantage that they
don’t deserve. That makes for an antitrust problem, this time with real
consequences not just for competitors, but also for technological advance, as
manipulative advertising drives dollars away from superior products toward
advertised products, and away from investment in innovation and toward
investment in consumer seduction.
The solution is to ban all advertising, targeted or not,
rather than to give newspapers an advertising monopoly. And to give journalism
the state subsidies that, like all public goods, from defense to highways, are
journalism’s genuine due. The BBC provides a model
of how that can be done without fear of government influence.
Indeed, Teachout’s proposed newspaper advertising monopoly
is itself just a government subsidy, but a subsidy extracted through an
advertising medium that harms consumers. Direct government subsidization
achieves the same result, without the collateral consumer harm.
The press’s brazen advocacy of antitrust action against the
tech giants, without making clear how much the press itself has to gain from
that action, and the utter absence of any expert support for this approach,
represents an abdication by the press of its responsibility to create an
informed citizenry that is every bit as profound as the press’s lapses on
social security a decade ago.
I’m glad we still have social security. But I’m also starting to miss balanced journalism.
1/3/2020: Editor’s note – this post was edited for clarification and minor copy edits.