The War on Big Tech Threatens Consumer Welfare

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A movement to put aside a half-century of jurisprudence in order to go after large technology companies is gaining steam, with potentially severe implications for American consumers. The call to break up Big Tech — an idea championed by former presidential candidate Sen. Elizabeth Warren — threatens to undermine the consumer welfare standard, a mainstay of antitrust law, in favor of a simplistic, misguided mantra: big is bad.

We’ve been there before. In the decades after the Sherman Act of 1890, the first federal antitrust law, courts struggled to interpret vague prohibitions against anti-competitive business practices.

Led by jurists like Supreme Court Justice Louis Brandeis, many courts came to embrace the view that a firm’s size itself could be grounds for antitrust action, regardless of the impact on consumers. Economic considerations — for example, the fact that firms in some industries produce more efficiently at larger scales, delivering better prices to the public — were largely irrelevant. The “big is bad” philosophy not only ignored practical issues of consumer welfare, but could easily be deployed to achieve broader ideological and social objectives.

Antitrust law was revolutionized by Robert Bork and economists of the Chicago School in the 1970s. They exposed the deficiencies of the “big is bad” approach and advocated for a new legal standard grounded in empirical evidence. The relevant question, they argued, was not whether a firm was too large, but whether its market power was tangibly harming consumers (e.g., through artificially higher prices). The “consumer welfare” standard they pioneered still guides competition policy today.

From a consumer welfare perspective, there is little reason to impose additional restrictions on Big Tech. Economists have long understood that network effects in technology favor giant companies. Network effects occur whenever a product or service becomes more valuable as the total number of customers increases. For example, the benefits you derive from a Facebook account grow as more of your friends, loved ones, and colleagues join the site. By facilitating interactions and reducing transactions costs, the scale of Big Tech platforms actually benefits consumers.

And despite frequent claims to the contrary, tech platforms exist in a fiercely competitive market. Again and again, once-dominant companies have faded away — or crumbled seemingly overnight — when consumers spotted better, faster services elsewhere. Anyone who doubts the intensity of rivalries in the tech sector should recall the fate of once-dominant AOL, Yahoo!, and Myspace. As a more recent example, consider the meteoric rise of start-ups like TikTok which have threatened Facebook’s supremacy in social media, especially among younger users.

Moreover, many of the most popular technology services offered by Big Tech — social media accounts, web searches, countless apps — are available free of charge, while Amazon attracts customers by beating competitors’ prices and offering a broader selection of products. Where is the harm, exactly?

Of course, Big Tech is not immune from antitrust concerns. Some has suggested these platforms have engaged in troubling behavior to squash competitors and hawk their own products. Ongoing investigations by Congress, the Federal Trade Commission, and other agencies may shed additional light on the extent of these practices and whether or not they have legal merit. Whatever actions may be needed to rein in potential abuses, however, should be taken with consumer welfare in mind, and not a knee-jerk opposition to large companies.

The consumer welfare standard has fostered an economy that delivers products and services at prices and levels of quality that would have been unimaginable just a few years ago. Too many policymakers seem willing to sacrifice that track record based on the discredited notion that big is necessarily bad.

Scholars like Geoffrey Manne, founder and president of International Center for Law and Economics, have pointed out the dangers of trying to address social and political concerns — like threats to free speech or inadequate privacy protections — through antitrust legislation.

With no objective guardrails rooted in economic analysis, who’s to say when a company is too large and powerful? Would the effort to break up or rein in big companies stretch beyond online platforms to more traditional industries? Would unelected bureaucrats be handed the authority to reshape our economy based on ad hoc rulemaking, thereby weaponizing antitrust rules to beat successful businesses and business models? How are regulators’ political and ideological motivations to be prevented from targeting disfavored businesses?

None of these questions have convincing answers.

Liam Sigaud writes for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.

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