Why ‘Breaking Up’ Big Tech Probably Won’t Work
Presidential candidate Elizabeth Warren and other observers have called for breaking up dominant technology companies like Facebook, Google, Apple, and Amazon. Yale SOM’s Fiona Scott Morton, an economist and an expert on antitrust, says that splitting up the tech giants is neither legal under antitrust statutes nor likely to be effective. Rather, she argues, the government should exercise its regulatory powers to promote competition.
This commentary originally appeared in the Washington Post.
There has been a lot of talk all year about restraining big tech—but very little action. That seemed to change a few days ago when the Federal Trade Commission slapped Facebook with a $5 billion fine. And there are promises of more to come, if not from the FTC, then perhaps from some other part of the federal government. Overseas, the specter of other action, from other capitals, also looms.
In this anti-big tech moment, the slogan “break them up” is simple, catchy and has been adopted by some politicians and other observers to capture the emotion of the era. Unfortunately, “breaking up” large tech platforms is often not a good solution to the economic harms created by large firms in this sector. There are usually more effective ways to create competition.
The break-them-up sloganeering fails to recognize that “big” is not, under the law, an antitrust violation. New products can achieve huge market share because consumers love them: consider Rollerblade’s dominance in the inline-skating market in the late 1980s, AOL’s high share of internet access in the 1990s, or how Apple owned the tablet market in 2011. If a product gets a big share because it is good and popular—but its maker has not behaved anti-competitively toward its rivals—it has not violated our antitrust laws. Without new laws giving the government the power to take a different approach, Washington cannot just break up big tech, or any company, solely because it is large or has a high market share.
Which means antitrust enforcers must determine whether, and exactly how, each tech platform violated U.S. antitrust laws. And because these platforms have totally different business models, with different degrees of market share—Google runs ad-supported search and content, Apple sells devices, Amazon engages in e-commerce, Facebook runs ad-supported social media—one would expect the tactics that might work to suppress rivals would be very different for each company.
An agency should analyze each platform individually and determine whether it acted in a way that was anticompetitive. Public information already sheds light on some possibilities for such an antitrust case. Perhaps (as a Facebook executive said) an independent Instagram would have become a serious competitor to Facebook. The Clayton Act permits the FTC to bring a case against Facebook after the fact for anticompetitive acquisitions that lessened competition. If the government were to win such a case, it would then be enabled to impose a remedy to restore the lost competition.
That bring us to the second question: Will a breakup prompt a remedy that will increase competition? In the old days of the Standard Oil monopoly, enforcers often broke up large entities by geography. But there is no sense in which it’s useful to a have a search engine or social network for a small section of the country. Rather, an agency must think carefully about the source of each platform’s market power and figure out what remedy—antitrust or otherwise —would create competition in that market. If used indiscriminately, a breakup can actually harm consumers and workers and reduce innovation.
Simply divesting Instagram from Facebook is unlikely to work. For one thing, everyone wants to be on the same site as their friends, so a divested division with no links to Facebook would likely lose its customers quickly—back to Facebook.
Secondly, Facebook began integrating the back ends of Instagram and WhatsApp in January 2019. By the time any antitrust verdict is rendered, there will be one coherent Facebook and no divisions to divest. However, competition could be restored by requiring that Facebook enable open interconnection between itself and any new market entrant. As a result of the interconnection, a consumer could switch to a new social media platform based on a better user experience or privacy, without sacrificing the connection to other Facebook and Instagram friends. Mandatory interconnection would largely defeat the strong network effects that protect incumbent platforms. Facebook could be required to facilitate interconnections for a period of time long enough to give competition a chance to take hold.
Third, and more generally, the government can go beyond antitrust and increase competition by establishing a more muscular regulator to level the playing field between incumbents and entrants. Regulations that lower entry barriers will help reduce the entrenched market power of dominant platforms. Today it is very difficult for a consumer to switch platform providers because her data are not under her control. What if a consumer could port her shopping data from Amazon.com to Jet.com with a few clicks? Or her favorite playlists between Spotify and Pandora? Data portability could allow new competitors to attract customers more easily.
Finally, a regulator could establish open standards for micro-payments from digital businesses to consumers. Platforms would then have to compete not just on quality but also on price—by paying consumers to use their search engines or social media sites. Regulations such as these and others could erode barriers to entry and give more opportunities for competition to manifest itself to the benefit of consumers.
Just “break them up” is an oversimplified sound bite, not a real policy that would restore competition in digital markets and benefit consumers.