Take a scalpel, not an axe, to ‘Big Tech’

How the mighty have fallen. Just a few short years ago, “Big Tech” and its founders were lionized. Now they are punching bags for all sorts of sins: taking away our privacy, causing the demise of local journalism, threatening our democracy, contributing to income inequality and chilling innovation by startups.

Congress is holding hearings on what to do, while federal and state antitrust enforcement agencies have opened investigations on the dominant platforms.

In crafting solutions, three principles should guide action:

• 1. Antitrust should stick to preventing Big Tech from abusing any market dominance to lift prices or dampen innovation;
• 2. Avoid highly invasive measures when less-invasive ones that address the problems are available; and
• 3. Realize that antitrust enforcement cannot solve all problems tied to Big Tech.

Breaking up Facebook, for example, into baby Facebooks (with the one exception below) entails big risks of unintended consequences — discouraging innovation by target companies — and generally would not reduce the ills that Big Tech has created and worsened, which are better addressed with other policy tools.   

Until our privacy law is changed to give users rights to their own data, including their web surfing histories, which they can monetize through “opt in” consents only if they want, even baby Facebooks and millions of websites that also track users will continue to invade their privacy.

Local newspapers won’t have a chance to survive unless the law allows them to collectively bargain with Big Tech and be paid for their content, in much the same way musicians and songwriters can collectively set royalties, under court supervision.  

The hope that breaking up Big Tech will reduce its political influence is misplaced. The “Baby Techs” surely would respond by forming or joining trade associations, which would have broader geographic footprints, and thus influence, on potentially more congressional members than any single Big Tech firm has now.

Given strong network effects and massive economies of scale, breathing life into a platform rival through a compulsory sharing regime could prove futile. Compelling the platforms to share their users’ browsing data with rivals would only spread privacy invasions, absent a change in privacy law as just noted. 

Requiring the platforms to inter-operate with every rival could be an administrative and costly nightmare while reducing platforms’ incentives to develop better and cheaper products and services.

There are two much less-risky ways to prevent Big Tech from squashing competitors while still preserving competition and the incentives for innovation that it provides.

One idea, outlined by economist Hal Singer, is to supplement our antitrust laws with a cheaper and less time-consuming way to halt discrimination by platform owners against “edge” suppliers of similar content, products and services, decided by administrative law judges.

This approach preserves incentives for innovation both by startups and the platforms themselves, which under some breakup proposals would be barred from developing and offering cheaper or better products and services.

Another approach is tightening merger standards with modest language tweaks in current law that would strengthen the ability of antitrust agencies to halt mergers that eliminate potential competition from both target firms and acquiring firms.

The Federal Trade Commission needn’t wait for Congress to act in one respect. It should re-examine Facebook’s acquisition of Instagram, which at the time it was acquired, and approved, was already a highly popular mobile app, with nearly 30 million users on the iPhone platform alone.

Why else would Facebook have paid $1 billion for a company with just eight employees and no revenues if it didn’t fear Instagram as a strong potential competitor? 

As for mergers between direct competitors, both enforcement agencies have a new reason for lowering the concentration thresholds above which they will challenge mergers: the growing bipartisan consensus for cutting back on globalization, and thus the ability of imports and foreign firms to discipline the pricing of domestic firms.

There is a price to pay for turning economically inward, but it shouldn’t be any higher than necessary, and more aggressive enforcement against mergers can limit the damage.

Finally, I know this may smack of self-interest, but Congress should resist efforts legislatively or in the courts to cut back on the important role for private enforcement of the antitrust laws through class actions, which are generally the only feasible way that parties injured by anti-competitive conduct can be compensated for their injuries.

Robert Litan is a nonresident senior fellow at The Brookings Institution, a partner at Korein Tillery and formerly a senior antitrust enforcement official at the Department of Justice.