Part I: Big Tech and Competition, Antitrust Laws in the US
Could you tell us a little about yourself and your work?
Charlotte: I studied antitrust law in law school. But I got to really use it when I was at the Federal Trade Commission (FTC) an independent agency of the US government to tackle anti-competitive business practices, where I was an antitrust enforcement attorney for four years. I got to participate in an exciting case – we sued 1800 contacts, an online retailer for contact lenses.
Our argument was that they (1800 contacts) had a series of agreements with other online retailers of contact lenses. They had agreed not to bid on each others’ brand names in google search advertising, so our theory was this had increased the price of contact lenses because there wasn’t as much price competition going on on google, which is where a lot of people search for and purchase contact lenses. And we actually won the case! 1800 contacts had to remove their contracts, and compete. This was an example of antitrust law working well.
Now I am at Public Knowledge, which is a non-profit that does public policy thinking and advocacy in tech policy, in a lot of areas relating to open internet and open information.
Competition policy is a big part of this. A lot of times we get involved when there are mergers in media or internet related industries. We have been doing a lot of work on the merger of two cell phone companies in the US, Sprint, and T-Mobile.
My focus is on digital platforms specifically. I am really thinking hard about how we can address the persistent power that digital powers have in our economy, to what extent we can use antitrust to address these problems and to what extent we need to use other policy tools.
Could you give us some background on the antitrust debate in the US, and how it is evolving with respect to the digital economy? Particularly in relation to anti-competitive practices, why hasn’t the FTC really taken action against big tech monopolization?
Charlotte: To answer the first part of the question, why hasn’t anything happened until now, the opportunities for enforcement so far have largely been merger enforcement. Digital platforms have been purchasing other companies to expand their businesses. So whenever there’s a large merger like that, the antitrust agency will take a look at it. They did an investigation before Facebook and Instagram were allowed to merge; when google was buying Double Click (their advertising platform) and Admob (their mobile advertising platform). Antitrust agencies did not find significant problems with these mergers that would allow them to block the merger in court.
The FTC investigations are a secretive process, so we don’t really know the details around why they made this decision. But I think, with the Facebook-Instagram example, it was probably a combination of two shortcomings of US antitrust laws.
The first is that the law has trouble dealing with potential competition. At the time of the merger, Instagram was seen only as a photo sharing app, and Facebook as a social media app. This is all speculation since we don’t really know, but it is likely that it wasn’t obvious to the regulators how a photo sharing site would compete with a social network. And it wasn’t clear that they were competing at that point when Instagram was purchased.
In my opinion, the way they should’ve looked at it, would have been to consider Instagram as a potential competitor to Facebook. We can see now that it obviously did become a huge competitor. But when you looked at it in that moment in time, it was just hard to convince a judge that this was going to happen.
To address this, I think it’s important to counter the assumption that the under enforcement of antitrust laws isn’t as bad as the over enforcement of antitrust laws. The discussion about which is worse, under or over enforcement, has been part of the conversation for a very long time in the U.S. But economists have recently shown that there are in fact far more issues arising from under enforcement, though previously many of them used to believe that over enforcement was a bigger concern.
It’s important to counter the assumption that the under enforcement of antitrust laws isn’t as bad as the over enforcement of antitrust laws.
In the face of uncertainty, when you’re more concerned about over enforcement, you’re probably not going to bring in lawsuits. But if we bring in the new economic learning about under enforcement being a bigger concern, that could improve the situation.
Another problem is that antitrust law in the US doesn’t deal very well with mergers between companies that are not direct competitors. Those are called vertical mergers. They can still cause a lot of problems, but it’s a lot harder to bring an antitrust cases in the US in such instances.
Regarding the killer acquisitions and mergers that have been happening, there was an interesting case between diapers.com and Amazon. How is predatory pricing implicated under antitrust laws?
Charlotte: This is an important question. What happened with diapers.com was that Amazon tried to acquire it, and diapers.com initially refused. So Amazon began competing very fiercely with diapers.com – price cutting, offering customers deep discounts on diapers and so on, until finally, Amazon did end up buying them. They (diapers.com) weren’t doing so well with this fierce competition, it seemed as though they had no choice.
The way that antitrust in the US currently thinks about predatory pricing has become very narrow over time. It used to be much easier to bring in cases related to predatory pricing, now it’s really hard.
The predatory pricing scheme is that you make your prices really low and put everyone else out of business. But the economic theory is that this is only profitable if you could then raise the prices so high, so as to recoup the losses of having lowered your prices in the first place. But if you raised your prices that high, new competitors would come in and compete away that high price before you can actually recoup the money. To effectively prove in court that predatory pricing is anti-competitive, you have to prove that the predator could actually recoup their losses in this case, which courts are very skeptical of due to this theory.
But this is all theory, and the theory isn’t as airtight as they make it sound in the court decision that made this law. So, even if someone has a really strong case that they were a victim of predatory pricing, the legal requirements based on these economic theories make the burden of proof really high for them. It’s not clear to me that the Diapers.com story is an example where a more reasonable law of predatory pricing would have made Amazon’s conduct illegal.
You’d mentioned some antitrust issues around vertical integration as well. Even with Amazon that’s a problem, they’ve moved from being only a market platform to cloud services, warehousing, logistics and production as well. How does this play into the antitrust conversation? Are existing laws capable of handling issues around vertical integration?
Charlotte: So just being very vertically integrated is not illegal. We would have to show that they have done some anti competitive conduct made possible because of the vertical integration.
The reason vertical integration can be a problem in the case of amazon is because the platform collects all vendor data to consider which products sell the most, and in which area, and then amazon produces these products themselves, giving preference to their products in the amazon marketplace. Since in the digital economy, data plays a critical role in facilitating vertical integration, does that impact antitrust considerations?
Charlotte: There’s definitely a concern with vertical integration that you can use the market power that you have from controlling one part of the system, like the Amazon Market place, to benefit your own product in another part of the system.
I don’t think of it so much in terms of Amazon Basics products, but the fact that Amazon is also a retailer. I think about it more as the Marketplace versus the retailer. So if they were shown to have a monopoly over the marketplace (which the antitrust agencies would have to prove), then you’d have to show that they used this monopoly to use the data like you said, or control how much space vendors get on their platform.
Amazon controls the search results, so if they use the tools they have through virtue of owning the Marketplace to give preference to their own products, that’s the type of thing that an antitrust enforcer could look at.
In this context, do antitrust authorities investigate the algorithms and data sets used for Google’s search engine recommendations, how app stores block or give preference to certain applications etc.?
Charlotte: They can investigate algorithms. But its hard. Companies want to keep a very close hold on these. The antitrust agency has subpoena power, so they can subpoena the algorithms if they want.
But you have to think about what’s the best way to really get the information that you need. So, sometimes (and this is probably the case for Google’s search recommendation algorithm) the algorithm is so complicated that just by looking at the code, you won’t know what’s going on. It’s sometime better to talk to one of the engineers, or someone who knows the algorithm better. Sometimes it’s better to get experimental access to the algorithm, so you can enter things and see what happens, to assess whether there’s anything discriminatory happening.
I think that’s something that the agencies would be working on right now, figuring out what’s the best way to evaluate algorithms, because I think this is going to become a bigger and bigger issue.
Part II: Adapting Antitrust to the Digital World- A Case for New Laws to Tackle Rising Monopolies in the Digital Economy
Based on our conversation so far, you’ve pointed out two parallel challenges around antitrust and tech corporations. Firstly, it seems tough to identify antitrust practices by digital corporations, which makes implementing existing laws more difficult.Secondly, the laws themselves don’t seem to be equipped to deal with anti-competitive practices in the digital economy.
What do you think are the gaps in existing laws in the antitrust space? How do they need to adapt, given the context of increasing big tech monopolies/ duopolies in the US?
Charlotte: What I am advocating for in the US are new laws to promote competition, specifically among digital platforms. I think it would be really helpful to have an expert regulator who is solely focused on digital platforms. But if we can’t achieve that, existing agencies need to be given more authority to regulate platforms.
I think it would be really helpful to have an expert regulator who is solely focused on digital platforms.
Some of the regulations that we’ve been talking about to promote competition between platforms are:
An interoperability requirement. Part of the reason that Facebook is so powerful is because of network effects. Everyone wants to be on the same network, and the more you engage with a platform like Facebook, the more it knows you – your friends, your likes and dislikes and so on. So, if a competitor comes in, it’s really hard to get anyone to switch. If I can’t access my friends and find the things I like, it’s not a very useful social network.
But if you had an interconnection and an interoperability requirement on Facebook, then I think that would make it easier for other startups in that space to succeed. People could be on a new platform but still communicate with their Facebook friends. I use Facebook as an example, but this would be a regulation across platforms that meet certain requirements.
Another aspect that we talk about is a non-discrimination standard. I think this addresses the Amazon vertical integration concern that you were talking about. If a company owns the platform as well as something that’s competing on the platform, they should not be allowed to discriminate in favor of their own stuff. Some people may say that antitrust can already handle this, but I think my concern is that the google example shows us that it probably can’t.
If a company owns the platform as well as something that’s competing on the platform, they should not be allowed to discriminate in favor of their own stuff.
So those are two of the regulatory tools we’re thinking about to promote competition. The catch is that, it’s possible that these digital platforms have been able to maintain their monopolies without violating antitrust law. They might have been able to do it without anti-competitive behavior. I think the economics of the industry are such that you could have monopolies without actually violating antitrust laws. But even though there might not be a violation of antitrust laws, we still see a lot of problems. Such situations call for new and different laws.
What about issues of data concentration, does that fall under the ambit of antitrust? Are there any conversations on alternative models of data ownership that could prevent this concentration?
Charlotte: It absolutely could. Data concentration could be a form of market power. But then you would still need to show some anti competitive conduct. There are conversations about having some kind of comprehensive privacy legislation in the US And part of that conversation is having the possibility of data use limitations, as well as data collection limitations. These would be similar to the purpose limitations in the GDPR. So I do think there’s an extent to which having a strong data privacy law could help promote competition.
And given the current political trajectory in the US, what are the Democrats and the Republicans considering regarding digital platforms? Are there any discussions on developing new ways to tackle Big Tech and address issues relating to competition?
Charlotte: It’s actually been somewhat bipartisan. There are both Democrats and Republicans who’ve been talking about the power of digital platforms, which is really exciting. It makes me think that we can actually do something. Elizabeth Warren, a potential Democratic presidential nominee, has talked about this a lot. She has a very detailed proposal for a new law that would require vertically integrated companies like Amazon to separate their platform business from the business that competes on the platform.
She also wants to increase antitrust enforcement, and she has given specific details about how to do this. On the Republican side, I think senator Josh Hawley from Missouri has been talking about this issue a lot. He hasn’t gotten nearly as specific, but he’s also not running for President.
There’s also going to be a hearing in the senate antitrust subcommittee about competition in digital platforms. The senate is led by Republicans, so that’s Republican senator Mike Lee who has decided to have this hearing. I don’t know what the content of the hearing is going to be. But it’s coming up next month.
There was a hearing on June 11 in the House Antitrust Subcommittee, specifically looking at online platforms and the press. That was the first on what they’re saying are going to be a lot of hearings on Online Platforms and Market Power.
It is a really big deal actually. The House Antitrust Subcommittee Chair, Congressmen David Cicilline, has announced that they are going to be doing an investigation into competition in digital platforms. The congressional committee is not limited to only looking at antitrust violations. The agencies such as the FTC are- they undertake investigations so they have a very narrow mandate. But the congressional committee can look at whether new laws are needed, which I think they are. And this is really exciting because it’s going to be a public process. The public will get to see what’s going on.
The congressional committee can look at whether new laws are needed, which I think they are. And this is really exciting because it’s going to be a public process.
This article is part of Bot Populi’s Competition in the Digital Economy series.
The US House Judiciary Committee, launching bipartisan investigations into competition in digital markets, stated that the Committee will investigate the rise and use of market power online and assess the adequacy of existing antitrust laws and current enforcement levels.
The first hearing of the US Subcommittee on Antitrust interrogated the role media platforms in relation to the erosion of local American journalism. You can watch the first hearing here: Online Platforms and Market Power, Part 1: The Free and Diverse Press.
Senator Elizabeth Warren’s proposal on Breaking up Big Tech, proposes to categorize online platforms, that function as a marketplace/ facilitate the connection of third parties, as ‘platform utilities’. Under Warren’s proposal, tech companies would be barred from owning the platform utility and any participants on the platform. They would also be prohibited from sharing data with third parties. Read Warren’s full proposal here: Here’s How We Can Break Up Big Tech.