By: Stephen Agnatovech
When the US announced economic growth had fallen by a record-setting 32.9% amidst the COVID pandemic, Amazon reported a profit of $5.2bn for the second quarter and sales of $88.9bn, 40% higher than the same period last year. These results came just a day after Congress accused the major tech giants of wielding too much power, holding such a dominant position that infringed on the rights of competitors to have any chance in the consumer market. Just this week, the Justice Department issued its antitrust lawsuit against Google for “unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising in the United States.” The question is: has the Supreme Court hollowed out antitrust law so much as to render success against tech giants implausible? In recent years, this question has become more and more difficult to answer. A dozen of the country’s top antitrust economists and lawyers conclude that the current antitrust framework is too limited to stop anticompetitive conduct. The only solution to halt big-tech is to rewrite the “industrial-era” antitrust statutes or suffer the consequences of monopolization.
Competition policy, also known as antitrust, originated in the United States in the late nineteenth century in response to the rise of big business. John Rockefeller’s Standard Oil Co. in 1882 developed into a monopoly due to his attorney creating a trust that dictated price and supply for other competitors around him. The use of trusts for industrial consolidation resulted in several states and the federal government to pass antitrust laws to combat such monopolization, which initially, were proven to be ineffective. In order to hold big businesses accountable, Congress passed the Sherman Act in 1890 with a promise to “rein in the trusts” through federal prosecution. Section 2 of the Sherman Act, fleshing out monopolization, makes it unlawful to monopolize, attempt to monopolize, or conspire to monopolize “any part of the trade or commerce among the several States, or with foreign nations.” However, the statute does not define what it means to “monopolize,” which has led to difficulty in establishing a successful antitrust claim against a defendant. Through common law interpretation, the courts have interpreted monopolization to occur if and only if the firm “(1) possesses monopoly power, and (2) engages in exclusionary conduct to achieve, maintain, or enhance that power.”
So how can the Department of Justice prevail against Google? A plaintiff could show direct evidence of monopoly power – that the defendant charges prices that competitors cannot compete with (which is usually too difficult to determine due to the complexity of measuring a firm’s costs). As a result, proof of indirect evidence has proven to be more successful upon a showing that the defendant possesses a large share of the relevant market and is protected by barriers to entry. However, the Chicago school of antitrust policy in the 1960s held that markets were more vigorous and self-correcting than existing antitrust policy allowed, and that government intervention sparked market instability rather than making the market more competitive. Federal circuit courts started to apply this free-market ideology by being permissive towards monopolies and allowing a less stringent screening of corporate mergers.
This ideology towards monopolies lasted well into the 1990s until a new analysis developed which relied on behavioralism, game theory, and new economic modeling that urged the Supreme Court to look more closely at firm dominance and mergers. Today, however, our economy is increasingly dominated by less tangible forces that include information, services, and technology that make it arduous in applying an outdated Sherman Act, especially with big tech companies such as Google. Antitrust economists and lawyers argue that breaking up the big tech firms will adequately protect competition, but it might not be a “quick-fix” all solution like some think. For instance, take the proposed breakup of Microsoft. Suppose Windows and Office had become separate companies. The strength of Windows was not that it was bundled or tied or leveraged, but that it had a network effect. This was also the case for Office – everyone used Office because it was a network that was well known and useful, not because it was part of the same company as Windows. If the network effects are internal to the product, it doesn’t make much sense to break them up. Google’s business model addresses advertisers and consumers. Breaking Google up would in fact give advertisers more leverage for successor companies which would, in turn, mean less privacy for consumers, which is not typically what antitrust advocates want.
Looking beyond a superficial view, there is more complexity with monopolies in big tech than we think. However, this does not mean antitrust economists and lawyers should give up, they must turn to regulation. A reformed and modernized antitrust law would reject all of the Chicago School presumptions once enforced and focus on the importance of a well-regulated economy. Even if controlling the natural monopoly itself is not sufficient, companies with more than 40 or 50 percent market share should be prevented from buying any direct competitor, no matter how small, to protect current and potential competition. Dominant firms in a highly consolidated market should also be barred from buying any competitor company. Dominant monopolies should have the burden of proving that company mergers would not reduce competition in the market. Judges must also keep in mind that the purpose of antitrust law is to protect and enhance competition and to improve the choices and quality for consumers. If a company has a substantial network effect then breaking it up would not provide an adequate solution for a competitive market and for consumers. The recent pandemic has highlighted the disparities in antitrust law today when it comes to big-tech monopolies and the only way Congress can prevail is to “cast a wider net.”
Student Bio: Stephen Agnatovech is a second-year law student at Suffolk University Law School. He currently serves as a staff member on the Journal of High Technology Law. Stephen received his Bachelor of Arts in Political Science from Stonehill College.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
