Tech companies are getting bigger and gaining more influence. Is that bad?
You might have seen news stories about a possible government backlash against big online platforms. You’re probably going to see more.
Executives from Facebook, Google and Twitter recently testified before Congress about how their platforms were used by Russia during last year’s presidential election.
But the cloud over these companies extends far beyond Russia. As tech giants increasingly dominate industries, many in the media and Washington are starting to raise concerns about the growing concentration of power in Silicon Valley. Figuring out what the government should do about it is not easy.
A century ago, the government broke up big oil and railroad monopolies. Could tech companies face the same fate?
We talked to Abraham Wickelgren, the Bernard J. Ward Centennial Professor at the School of Law, who specializes in antitrust law and economics, to help understand what these cases teach us about concepts such as competition and market power.
Why is it bad for companies to eliminate their competition?
AW: The underlying premise of antitrust is that competition between companies is good for consumers and our economy. Competition leads to lower prices and to the type of product consumers most desire. A competitive market also usually produces the most efficient market structures.
When is it OK for companies to dominate the competition?
AW: In the U.S., big companies like Facebook and Google are sometimes investigated to see whether they achieved market dominance through developing a superior product or just by being first (which does NOT violate antitrust law) versus by making it harder for rivals to produce or market their product (which does violate antitrust law).
"In the U.S., it is not in itself illegal to have monopoly power." — Abraham Wickelgren
Amazon will control nearly half of e-commerce sales by next year, according to a recent report by eMarketer. If they eventually control 99 percent, would that be illegal?
AW: In the U.S., it is not in itself illegal to have monopoly power – when one company controls a market for a specific good. It is only illegal to try to acquire or maintain monopoly power in a way that excludes or hinders competitors – and is thus bad for consumers. So, whether this would be illegal would depend on how Amazon achieved this 99 percent control.
The news media argued this summer that Facebook and Google, which control over 70 percent of online advertising, should draw scrutiny from government antitrust regulators. Are Facebook and Google doing something wrong?
AW: Speaking only of their dealings with the news media, I don’t think anything they are doing violates the antitrust laws. It’s not illegal to have a majority market share. If advertisers simply prefer placing ads on Facebook and Google to placing them on news websites, they are free to do so. What is a problem is using a position of market dominance to reduce competition either by excluding or cooperating with rivals. For example, if Facebook and Google got together and agreed on the prices they would charge advertisers, that would be illegal price fixing. Whether Google or Facebook have done something like that is an entirely different issue.
"It’s not illegal to have a majority market share. If advertisers simply prefer placing ads on Facebook and Google to placing them on news websites, they are free to do so." — Abraham Wickelgren
In July, a group of news organizations asked Congress to grant an antitrust exemption that would allow outlets to collectively bargain with Facebook and Google for ad revenue. Can exemptions be made to antitrust law in cases like this?
AW: Yes, but it is unlikely it will be granted in this case. One of the main arguments the news media uses is that news is special because it is essential for democracy. This is not an issue a court can consider in an antitrust case, but Congress could decide to exempt behavior that would otherwise be illegal under the antitrust laws. While Congress has occasionally granted antitrust exemptions – Major League Baseball is a prominent example – they do not do so lightly. Unless the news organizations can show that an antitrust exemption would somehow improve the accuracy and availability of news to the general public, I doubt Congress would grant such an exemption.
Dr. Abraham L. Wickelgren is the Bernard J. Ward Centennial Professor at the University of Texas Law School. He specializes in antitrust and law and economics. He is the co-editor of the American Law and Economics Review, has been on the editorial boards of the Journal of Industrial Economics and the International Review of Law and Economics and is a former member of the board of directors of the American Law and Economics Association.