Big Tech Should Be Punished for Bad Conduct, But Not Its Size
If there’s one thing that late February's hearing on the perceived monopoly power of tech giants showed, it’s that many legislators care less about consumers than they do about political theater. Congresspersons from both sides of the aisle lined up to condemn Amazon, Google and Facebook, for purportedly abusing their dominant market positions as “gatekeepers.” Throughout the hearing, they threw around proposals to “break-up” these large, vertically-integrated, cross-market companies. But the academics and lawyers who provided them with testimony, presented a range of options for fostering competition and punishing uncompetitive conduct in the tech space. Congress would do well to heed their advice.
Targeted proposals like requiring “gatekeeper” platforms that genuinely undermine consumer welfare to expand the ability of would-be competitors to integrate their services, merit consideration. Liberalizing app developers’ access to the Android or iOS app stores, for example, would reduce barriers to entry and foster consumer access to new technology. Conversely, rash and ideologically-driven proposals, like preventing large companies in one industry from leveraging their market dominance to offer a better product in another industry, will just kill American innovation and technological progress at the expense of consumers and entrepreneurs who need digital services.
The argument we heard on repeat from Congressional speakers was that tech giants retain “gatekeeper” status in key areas because of their user network’s sheer size alone. Google is so big, the logic goes, that there’s no realistic chance of a user switching to alternatives. Furthermore, these platforms are so big they’re able to simply buy out and ‘kill’ any innovative start-up that tries to better what they do. When Instagram began poaching Facebook’s users, for example, Facebook simply bought them out. And this supposedly harms consumers. Even if they don’t like Facebook’s privacy controls or moderation practices, Facebook users might stay for fear of losing touch with friends and family on the platform. So in the end, consumers are harmed since competition is based more on network size and user data consolidation than it is on improving user experience.
But this isn’t the full picture. For many start-ups, the opportunity to get bought out by a larger player encourages them to invest in developing their own innovations prior to turning a profit. When they do get bought out by Big Tech, their innovation gets passed on to the consumer, who benefits all the same.
And so-called ‘switching costs’ are often overstated. For instance, it’s easy to switch search engines. DuckDuckGo has seen a massive uptake in users who want more data privacy. People don’t stay with Google because of switching costs, they stay because they value the algorithm that Google engineers continually develop to better identify and target user needs. And they value it more than improved privacy. After all, Google’s superior search algorithm spearheaded its rapid rise to the top of that market against seemingly monolithic competitors in the 1990s.
It’s also untrue that these giants face no meaningful competition. They’ve got competitors on all sides. For instance, Amazon corners 38% of the U.S. e-commerce market — that’s hardly a monopoly. But Amazon is also just 4% of the retail market. Competitors include brick-and-mortar giants like Target and Walmart that have been rapidly scaling up their own e-commerce shopfronts. Meanwhile, Facebook competes with Tiktok, Snapchat, and other social media applications that provide different experiences — despite buying out Instagram and replicating competitor features like Snapchat ‘stories’ at wider scale.
Regardless, it’s easy to sympathize with small businesses that rely on Facebook and Google’s ad services to reach consumers. These giants’ social media and search engine services aggregate enough users for them to collectively capture 52% of the U.S. digital advertising market. A single change to their terms of service or algorithms could damage small businesses, who’d have little recourse for mitigating their losses. What are they supposed to do? Abandon the larger platforms for alternatives that reach smaller audiences at potentially higher cost? That’s not a winning strategy.
Meanwhile, Amazon has been accused of using its “gatekeeper” leverage as an e-commerce platform to give preference to its own competing products as a retailer in search results. Former Amazon employees even claim they used sellers’ proprietary data, like sales volume and marketing spend, to develop competing products at optimum price points — actions that Amazon officially prohibits and is investigating.
Still, preventing companies from integrating their services across different business lines, including where they compete with those whom they serve, isn’t the answer to these grievances. In Amazon’s case, revenue it generates from advertising and selling its own products offsets the costs of shipping, returns, sales tax accounting, and online shopfront that it provides to consumers and small businesses alike. This integration allows smaller sellers to compete with behemoth retail giants like Walmart and Target that have internal capabilities for doing these things. Sellers can instead focus on serving customers by acquiring or developing better products. Consumers benefit when Amazon makes competing products because other sellers may be forced to lower costs or improve quality. Similarly, digital advertising on Facebook’s social media platform or Google’s search engine, benefits countless entrepreneurs and their customers precisely because so many users are aggregated in one place, thereby making ad spend more cost-effective and better calibrated to people’s needs.
Targeted interventions are best for dealing with dubious conduct that genuinely hurts consumers. For instance, Google and Apple are facing antitrust lawsuits for conduct that’s already illegal. Rather than changing the laws, an expedited antitrust litigation process would conserve public resources while reducing the financial stress placed on innocent litigants. Companies should be punished for their nefarious conduct. Not their size. Especially when size and integrating multiple business lines lets them better serve millions of Americans.
Satya Marar is a tech policy fellow and senior contributor at Young Voices. His articles on tech and innovation policy have been featured in Washington Examiner, Washington Times, The Hill and RealClearPolicy.