From investigations launched by the Department of Justice (DOJ) and the Federal Trade Commission (FTC), to senators calling for their dismantling, Amazon, Apple, Facebook and Google long have been the target of heated debates around antitrust concerns. As their CEOs prepare to testify in front of the House Judiciary Antitrust Subcommittee on competition in the digital marketplace, it’s time for regulators to finally engage in fact-based discussions about internet platforms and stop attacking some of America’s most innovative companies.
Over the past few years, these four companies have been the subject of unstoppable criticism. Sen. Elizabeth Warren (D-Mass.) pushed for breaking them up; the DOJ and the FTC both launched investigations, as have most of the state attorneys general, into at least one of the four companies. Abroad, the European Commission has concluded three investigations of Google and is looking at the other three companies.
As the House subcommittee considers the role of large online platforms on the economy, its members should acknowledge that a radical departure from current antitrust laws would be a mistake. Although antitrust authorities must remain vigilant in protecting market competition, including taking action against anticompetitive conduct, existing laws give them all the powers they need. In the words of a former senior antitrust official, in this case regulators need a scalpel, not an axe.
Just as at the turn of the 20th century large industrial corporations were the business model of the future, internet-based platforms may be this century’s business model. Platforms create enormous value by eliminating many of the transaction costs that often impede the creation of value, and by increasing the ability to act on information. McKinsey estimates hiring platforms alone could boost U.S. Gross Domestic Product (GDP) by $512 billion each year and the internet of things could generate up to $11.1 trillion in global value by 2025, equivalent to 11 percent of the GDP.
Existing platforms also deliver enormous benefits to users. A 2017 poll of internet users found that individuals would demand $17,530 to give up internet search for a year. The average person valued the top five internet functions at $31,607 but got them for free.
Third, these companies are not fat and happy monopolists. Each company faces intense competition in many aspects of its business. The relevant market for Google and Facebook is not search and social networks, but advertising on the buy side and user attention on the sell side. Apple and Google compete over phone software and apps, and Amazon competes with almost every online and offline retailer.
A classic monopolist would try to raise prices by restricting supply and cutting back on investment. But these companies constantly innovate to expand their networks to more users and invest massive amounts in research and development (R&D). Amazon and Alphabet, Google’s parent company, lead the world in R&D spending by public companies; Apple and Facebook rank 7th and 14th, respectively. Together, the four companies invested $58.2 billion in R&D in 2018, compared to the $8.3 billion spent by the National Science Foundation.
Fourth, internet platforms benefit from network effects, where everyone is better off if everyone is using the same platform. This usually means costs are lowest and social value highest when the market is led by just one or two companies. Breaking up platforms would reduce social welfare and make consumers’ lives worse.
Fifth, most platform policies are more benign than people realize. Although heavy data use is integral to each of these companies, the value lies in the business model and algorithms rather than in the data itself. The Economist estimated that paying users for the data they give Google and Facebook would amount to only $8 per user. Likewise, efforts to ban companies from competing with third parties on their platforms would prohibit conduct that is common and legal in other industries, such as when grocers put their own products on the shelf next to a branded product. It also would result in higher consumer prices and hurt businesses that cannot afford to set up their own systems for advertising, order fulfillment and delivery.
Finally, existing antitrust laws are flexible and can be adapted to handle any true threats to competition. The main thing they demand from regulators is a careful economic study of the specific market in question that documents actual, rather than imagined, harm to consumers.
Joe Kennedy (@JV_Kennedy) is a senior fellow at the Information Technology and Innovation Foundation, world’s leading think tank for science and technology policy.