For long, taken in by the shiny promise of digital disruption, governments have been loathe to regulate the operations of tech corporations. Chasing pipe dreams of rapid economic gain and painless solutions for wicked development problems, policymakers have been reluctant to put the brakes on innovation’s unbridled march. The arc of policymaking and action has also been in stark contrast to Silicon Valley’s ‘move fast and break things’ approach. In their early days, tech companies ably exploited this wide gap, passing themselves off as mere intermediaries who could not be targets for regulation. Over the years, Big Tech has actively pushed for, and invested millions in lobbying for regulatory grey zones to continue maintaining an operational advantage.
Even when the problems of the current digital paradigm – data monopolization, social and economic extractivism, and extreme value concentration – have become too obvious to ignore, regulators have limited themselves to slapping fines for bad behavior (which tech companies shrug off as the cost of doing business) and left the larger structures of the economy untouched.
Indeed, these practices have cultivated the permissive economic system one is familiar with today, primed as it were for an effortless takeover by Big Tech. The result, excessive concentration, and monopoly power. While this has been common across major industries, with select superstar firms dominating the scene, nowhere has it been as pronounced as in the case of technology. In 2021, Standard and Poor’s adjusted Herfindahl-Hirschman Index for tech companies listed on the Dow Jones was at 7.2. Tracking data from the 1990s, the computation put current levels of concentration at the 95th percentile, a historically high level of concentration.
The clamor around market distortions has grown considerably in the past couple of years and Global North countries are finally waking up to the challenges Big Tech’s bigness presents.
Perched at the top of every value chain, major tech corporations own and control digital resources and in the process, funnel out a bulk of the profits accrued from the activities of the digital economy. Significantly, they are able to leverage their end-to-end control over transaction and use ecosystems for rent-seeking behaviors that clearly present as instances of market abuse. For instance, Amazon, which functions as a marketplace for third-party vendors, also directly competes with said vendors through preferential selling practices that are built on intelligence it extracts from economic activity generated on the platform.
Additionally, for participation in its Prime program, Amazon mandates the use of its Fulfillment by Amazon (FBA) service, which sellers have to pay for. FBA fees, according to a report by the Institute for Local Self-Reliance, generated close to USD 57 billion in 2021 for Amazon and has now overtaken its most profitable arm, Amazon Web Services (AWS) in revenues.
Similar rent-seeking behaviors have been noted with respect to steep Apple’s app store commissions, also referred to as the infamous Apple Tax. Google devotes almost half of the first page of its web search with direct answers, copied from other sources and privileges through design and optimization content searches to plug back into its other products such as Youtube, Reviews, News or Maps. This ensures that users never move out its ecosystem and engage with its products exclusively.
The clamor around market distortions has grown considerably in the past couple of years and Global North countries are finally waking up to the challenges Big Tech’s bigness presents. In 2020, Japan introduced the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms. South Korea has pushed breakthrough legislation with a view to open up the current duopoly of Apple and Google app stores and has also been taking measures to tighten rules for its homegrown e-commerce companies, and better protect the interests of small businesses. The EU’s Digital Markets Act (DMA), outlines the concept of ‘gatekeepers’ to capture the dominant role tech platform play in markets. Slated to come into effect in 2023, the DMA is focused on creating a fair market, especially from large platforms that offer key services. Read together with the Digital Services Act, the DMA signals the boldest regulatory move by the EU in a post-GDPR era.
Following on the footsteps of the EU and other countries is even the US, the home of Big Tech and the prime evangelist of the Silicon Valley model. As the US government is forced to contend with the runaway power its biggest companies wield in the domestic sphere, we have seen instruments of law not dissimilar in nature to the DMA being introduced in the US Senate – the American Innovation and Choice (AIC) Act, the Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act and the Open App Markets Act to name a few.
Unpacking the Regulatory Wave
The legislative framework of the DMA, and its American counterparts with more watered-down provisions, encapsulate the popular thinking around curbing Big Tech power – tackling self-preferencing, enabling interoperability and portability across services – in other words, ensuring fairness through competition-enhancing methods. In our cheat sheet below, we offer an overview of the major US and EU laws contemplating platform regulation and assess them for their scope and overall effectiveness.
|What is it?||Digital Markets Act (EU)||American Innovation and Choice Act (US)||Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act (US)|
|Has this law been passed?||Yes, adopted by the European Parliament in July 2022||No, introduced in June 2021 in the US Senate, yet to be voted on||No, introduced in June 2021 in the US Senate, yet to be voted on|
|What does it do?||Lays down rules to ensure contestability and fairness for the markets in the digital sector in general, and for business users and end users of core platform services provided by gatekeepers in particular (Recital 7)||Outlaws certain discriminatory conduct by major platforms (long title)||Promotes competition, lower entry barriers, and reduces switching costs for consumers and businesses online (long title)|
|Does it specifically address/recognize large online platforms?||Yes, identifies core platform services (defined in Article 2(2)) and gatekeepers (Article 2(1)) - outlines each service in an exhaustive list||Yes, covers online platforms, defined in Section 2(9)||Yes, mentions covered platforms (defined in Section 5(6) and 5(7))|
|What key issues does it cover?||-Recognizes and designates gatekeeper enterprises that offer core platform services|
- Defines obligations of gatekeepers (Article 5)
-Restricting processing of personal data for commercial exploitation without consent as under GDPR
-Restricts use of proprietary data (aggregated and non-aggregated data generated by business users)
- Enables interoperability
|- Prohibits self preferencing, use of proprietary data generated by businesses on the platform to develop competing products, dark patterns(Section 3)||- Requires covered platforms to offer portability, interoperability, and maintenance of technical standards under Section 6, violation of which is stated to be an unfair method of competition declared unlawful by the FTC|
|Is a civil or criminal law?||Civil- with imposition of fines, worldwide turnovers targeted, unlike in the US||Civil- with fines or penalties, injunctions||Civil- with fines or penalties, restitution of losses, contract rescission or reformation, refund of money, return of property, disgorgement of unjust enrichment, and injunctions|
|Does it prescribe ex ante solutions?||Yes, requires designation of gatekeepers at the outset. Allows the Commission to conduct market investigations into new services to assess whether they should be core platform services (Article 19)||Yes, expressly prohibits certain illegal activities||Yes, sets standards for interoperability to improve competition|
|Does it address data concentration issues?||Yes, addresses the issue of collection use of aggregated and non-aggregated data by core platform service providers to enable offering combined services to customers (Article 6(2))|
It also envisions interoperability in communication services(Article 7)
|No||Yes, seeks to limit network effects through interoperability standards and requires non commercialization by covered platforms when they offer interoperability|
|Who is the enforcement agency?||European Commission||Federal Trade Commission||Federal Trade Commission|
While the proposed legislations are a big step in closing the gap on platform regulation, they fall short on some accounts. Significantly, with regard to the question of data concentration and subsequent consolidation of power, the laws do very little. The DMA is admittedly able to restrict the use of aggregated and non-aggregated data not in public domain by gatekeeper companies. However, given the underlying goal of promoting digital businesses in Europe, the law fails to identify data as an infrastructural layer of the business model of Big Tech and is thus unable to disincentivize and restrict the concentration of data in profit-making entities. The DMA does not just explicitly address Big Tech’s dominant position in the economy but encodes the ambition of the region to enhance economic opportunities for its own smaller players. What remains to be seen, is whether, in the long-term advancement of this strategic goal, the DMA ends up working to size down US’ Big Tech only to have a European variant take its place.
Given that these laws, the DMA and the US laws, are yet to be enforced, there is little that can be said by way of their actual impact. But already the lobbies of Big Tech are hard at work to stall, delay, and push back against the efforts. The AIC Act, which enjoys unusually strong bipartisan support within government has been delayed from hitting the Senate floor for a vote. Industry organizations such as the Computer & Communications Industry Association have been lobbying and spending millions in ad campaigns against the bill and other legislations. Arguing that this and the current antitrust bills create an ‘innovation by permission regime’, Big Tech has deployed a don’t fix what’s not broken defense, raised the bogeyman of data security and breaches, cited blows to consumer benefits, and the danger of being out-competed by foreign companies.
These arguments have been debunked through rigorous and independent analysis. Commenting on these claims, in an open letter to the US Senate Judiciary Committee on the Open App Markets Act, security policy expert Bruce Schneier asserts, “it’s simply not true that this legislation puts user privacy and security at risk. In fact, it’s fairer to say that this legislation puts those companies’ extractive business models at risk.”
What of the Global South?
It would be remiss to not discuss the less perceptible geopolitical interests at play in current Big Tech regulatory efforts. Lacking a strong position in the tech sector, the EU has successfully leveraged its position as a valuable regional user market and its leadership in digital policymaking to shape global standards and regulatory practices for the digital economy. The DMA, following on the heels of the GDPR is an effort to advance the Brussels effect, referring to the diffusion of its normative regulatory power and compliance standards over global companies. Similarly, the US’ efforts to regulate Big Tech is an effort to reclaim global regulatory leadership from the EU and restore its advantage and influence over the governance of the digital.
Lacking a strong position in the tech sector, the EU has successfully leveraged its position as a valuable regional user market and its leadership in digital policymaking to shape global standards and regulatory practices for the digital economy. [Meanwhile] the US’ efforts to regulate Big Tech is an effort to reclaim global regulatory leadership from the EU and reshore its advantage and influence over the governance of the digital.
But while the agenda to exercise global normative influence is embedded in such efforts, it is relevant that the current basket of laws in process do not take into cognizance of the activities of Big Tech operations outside of Global North jurisdictions. In fact, if anything, there is a double-speak at play. Even as the EU and the US ramp up accountability requirements from Big Tech for domestic markets and citizens, they continue to push for trade and investment regimes that disallow developing nations the same policy room. Clear contradictions are visible in the domestic laws being deliberated and trade clauses that are being pursued.
Which is why, none of these laws seek to assess the cross-border impact of the activities they seek to address. While understandable from the point of view of domestic legislation, given the fact that these laws target companies with transnational reach and impact, specifically in Global South countries, the absence of such impact analysis requires critique. Especially, as the Global North seeks to tighten the leash on Big Tech domestically, a danger is that tech companies will seek to recoup the loss of dominance in other markets. As we have seen repeatedly in the paradigm of globalization, profits chase advantageous jurisdictions.
It is not unusual for companies to be regulated for their actions across borders – the US Foreign Corrupt Practices Act prohibits bribing foreign officials by US entities and is applicable anywhere in the world. It is, thus, possible to imagine legislation that can impact the activities of, say, a US-based Big Tech entity in a Global South country, where it exerts significant power and is (data) extractive in its business practices. For instance, the Facebook (now Meta) Free Basics program has been instituted in at least 32 African countries since 2014. This program seeks to provide “free of data charges access to a variety of basic services like news, weather and health information, job ads.” However, the data extraction and control over the consumption of content by a US-based company in a Global South region is often not in focus.
In essence, in the regulation of Big Tech companies, whose customer (and profit) base is global, the national laws and rules of the Global North need to be cognizant of the impact on Global South countries, where such laws are absent for the most part. While few countries such as India and South Africa have taken an early lead in addressing market and platform regulations for the digital economy within their national contexts, this is a very limited trend.
In the regulation of Big Tech companies, whose customer (and profit) base is global, the national laws and rules of the Global North need to be cognizant of the impact on Global South countries, where such laws are absent for the most part.
In the Indian context, for instance, a proposed amendment to the Indian Competition Act is currently pending at the Parliament. These amendments are intended to address the challenges of an increasingly digitalized economy, by including the provision of services within the ambit of the Competition Commission of India’s jurisdiction. It also seeks to review mergers where the value of the transaction exceeds INR 2000 crore (USD 250 million). This could also potentially include any India-based acquisitions US-based tech companies make since those are often high-value transactions. In fact, lawyers expect this new provision to particularly focus on acquisitions in the nature of Facebook taking over WhatsApp or Instagram. However, the law fails to actually identify online platforms by name and business model, and the impact on the market because of their activities.
Antitrust Does Not Solve All
Systemic under-enforcement of competition has been a hallmark of neoliberal economic policy, which has placed excessive faith in the ability of markets to self-correct abuses of market power, and its failings are now apparent in the case of Big Tech. In her critical paper, Lina Khan has traced the issues of antitrust enforcement informed by the Chicago school view. These have included the over-reliance on the consumer welfare standard to evaluate conduct and mergers, and the use of price to determine consumer welfare without taking into account long-run effects and outcomes for inequality and worker welfare. Other post-Chicago school scholars have also pointed to the tendency to overlook innovation harms in the case of monopolies.
In this context, antitrust-centered solutions like the DMA, the ACCESS and AIC acts for course correcting extreme concentration are reflective of a growing embrace of what is termed as the ‘New-Brandesian’ philosophy. Where the longstanding Chicago school view of antitrust has posited that monopolies are permissible as long as there is an expansion to consumer benefit and welfare, the New-Brandeisian approach considers the threats to the competition process itself, as well as long-term harms monopolies present to market integrity and by extension, democracy, and equity. In this regard, this approach emphasizes more proactive state action in curbing practices of concentration.
While certainly, a more comprehensive view of market harms over a narrow consumer welfare standard is a welcome and salient approach to addressing monopolies’ position in the digital economy, the assumption of reforming for a perfect market or a non-existent level playing paradigm is a limited approach to tackling systemic concentration. In the popular clarion calls to Break up Big Tech, competition policy may seem revolutionary and a one-stop solution for reforming the digital economy. But this is an erroneous reading of the scope of such laws and a nirvana fallacy one should not fall prey to.
For while antitrust may be one of the more powerful tools in the regulatory arsenal of states, it is also a highly discretionary and narrow-band response method where caution precedes action by much and where right of action is disproportionately vested with regulators. Even with an expansion of scope of ex-ante action and a recognition of the gatekeeper status of Big Tech platforms, the proposed new legislations cannot travel the distance in addressing all the fallouts of economic and data concentration. Much like the advent of GDPR did not magically solve the problem of data extractivism, the DMA or the AIC Act will not radically alter the fabric of the digital economy.
Platform regulation has to go beyond the preservation of the ideal market and address head on the issue of data ownership along with progressive taxation efforts that truly focus on redistribution, expansion of worker protections and stronger corporate governance requirements, as well as investments in digital public infrastructure.
Indeed, one of the critical voices of the New Brandeisian antitrust reform movement, Tim Wu himself has noted this issue, writing, “it is important to understand that the revival of an antimonopoly tradition is a broader project than revival of the antitrust law. While that project is a key front, a broad set of policy levers and legal interventions — including in labor law, intellectual property law, corporate law, banking law and financial regulation, and campaign finance law — can be used to structure markets and check private power in the service of anti-monopoly values.”
Undoubtedly, while the impact is still to be determined, the breakthroughs of antitrust legislation in shifting the discourse are not insignificant. But the job has only begun. Platform regulation has to go beyond the preservation of the ideal market and address head on the issue of data ownership along with progressive taxation efforts that truly focus on redistribution, expansion of worker protections and stronger corporate governance requirements, as well as investments in digital public infrastructure.
In that regard, the EU corporate sustainability due diligence directive is significant in ensuring a just market where companies operate with transparency and accountability, not only in their home countries, but along their supply chains (a large part of which resides in Global South countries). But regulations of this sort also have to account for intervention by corporates, which, like in the case of the EU due diligence law, is reported to have been watered down because of such corporate lobbying. Such maneuvers reverse the years of progress made by civil society in advancing such critical agendas. Imposing hard limits on lobbying activities and enhancing democratic oversight over the legislative process, is thus an important corollary area of reform.
Lastly, regulation needs to go beyond addressing the challenges of the present to anticipating the issues of the future. It is a positive sign that from a no rules wild-west, the policy landscape around the digital economy has evolved substantially today and regulations with real teeth are coming into force. But unless policy imagination extends to the next phase of the digital economy on an urgent footing, especially when considering the imminent rise of Web 3.0 technologies, the patterns of policy paralysis and inaction will only keep repeating.