A FAANGed Giant: Antitrust in the Tech Age
July 29, 2019
According to microeconomic theory, a monopoly will charge higher prices and produce fewer goods than the competitive market, thereby harming consumers. Furthermore, a lack of competition is thought to stifle innovation, preventing beneficial technological progress. Historically, in order to prevent these risks, the United States government created the FTC and the Antitrust Division of the DOJ. Their missions are similar, as they both aim to protect consumers and promote competition. In the past, regulators have relied on dissolution in response to monopolies. In 1911, courts ruled to split Standard Oil, John D. Rockefeller’s oil giant, into several smaller, independent entities. Decades later in 1974, the Department of Justice sued under the Sherman Act of 1890 to break up AT&T into regional entities.
This worked because the government, in effect, artificially created competition. This competition, in theory, results in lower prices and higher quality goods for consumers because the firms are now working against each other to be the best in the market. Dissolution, however, is not the end-all-be-all of antitrust solutions. For example, it worked in the AT&T case because the company and its physical capital were split into regional companies that served consumers in given geographic areas. However, this strategy would be less effective with companies whose main operations take place in cyberspace. It would be impractical, for instance, to split up Google’s servers into different companies, and this goes for the other FAANG companies as well.
FAANG is the acronym for Facebook, Amazon, Apple, Netflix, and Google, the largest tech stocks traded in the United States; they have a combined market cap of $3.1 trillion USD. While Netflix is not of particular antitrust concern, regulators have been binge watching the other FAANG companies. The danger these companies pose is unlike the dangers of the monopolies of old. The tech titans aren’t likely to dominate the market in order to raise prices. In fact, they’ve done the opposite. When Facebook acquired Whatsapp, it dropped the $0.99 USD subscription fee, making the app more accessible to users. Furthermore, Amazon’s lightning-fast shipping, extraordinarily wide array of goods, and overall superior service has allowed it to dominate the retail industry. This dominance has forced competitors like Best Buy and Walmart to reduce their prices, resulting in net lower prices for consumers. Google’s integration into thousands of tech and Internet services has allowed its consumers to forego the arduous task of signing up for website after website after website. These companies have made life significantly easier for consumers. They’ve allowed for ease of access across multiple platforms as well as lower prices. So, what are we to do?
“The antitrust laws,” according to an article by Former United States Circuit Judge Frank Easterbrook, “are designed to prevent reductions in output and the associated higher prices.” This is where current antitrust laws fall short. Because much of it revolves around consumer welfare (specifically, prices and output), it fails to account for firms like the FAANG companies that don’t have these negative effects on consumers. In The Amazon Paradox, an article by competition law specialist Lina Khan, Khan writes that “the current framework in antitrust…is unequipped to capture the architecture of market power in the modern economy.”
Some, including Democratic Presidential Candidate Elizabeth Warren, have called for a breakup of big tech. This would come about either by undoing past acquisitions or by splitting off different parts of the business. In the eyes of those who support these plans, this will bring balance to the market, restore competition, and create more brands. However, in the words of Neil Sadaka, “breaking up is hard to do.” The University of Pennsylvania’s very own Herbert Hovenkamp, an antitrust professor, noted that break ups are “horrifically expensive to bring, and the remedies are always disappointing.” The break up that turned AT&T into seven regional firms took eight years. In short, the solution towards which many look when they think of antitrust may not be viable for big tech.
Now it’s up to lawmakers and regulators to figure out what, if anything, is to be done about big tech. Some will die by the dissolution remedy. Others believe that big tech is in a good spot and that too much regulation may pose a greater threat than dominance itself. Only time will tell which camp will have its way. We should, however, be wary of the old adage that tells against putting all of one’s eggs in the same basket. If we place our eggs in one or only a few baskets, those eggs may very well be cracked by a FAANGed giant.
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.