The Antitrust Case Against Facebook, Google and Amazon - WSJ - 0 views
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shared by Javier E on 17 Jan 18
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A growing number of critics think these tech giants need to be broken up or regulated as Standard Oil and AT&T once were.
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By that standard, there isn’t a clear case for going after big tech—at least for now. They are driving down prices and rolling out new and often improved products and services every week.
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That may not be true in the future: If market dominance means fewer competitors and less innovation, consumers will be worse off than if those companies had been restrained. “The impact on innovation can be the most important competitive effect” in an antitrust case
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Yet Google’s monopoly means some features and prices that competitors offered never made it in front of customers. Yelp Inc., which in 2004 began aggregating detailed information and user reviews of local services, such as restaurants and stores, claims Google altered its search results to hurt Yelp and help its own competing service. While Yelp survived, it has retreated from Europe, and several similar local search services have faded.
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In a 2005 paper, Mr. Scherer found that Standard Oil was indeed a prolific generator of patents in its early years, but that slowed once it achieved dominance.
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Standard Oil and AT&T used trusts, regulations and patents to keep out or co-opt competitors. They were respected but unloved.
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By contrast, Google and Facebook give away their main product, while Amazon undercuts traditional retailers so aggressively it may be holding down inflation. None enjoys a government-sanctioned monopoly; all invest prodigiously in new products.
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Yet there are also important parallels. The monopolies of old and of today were built on proprietary technology and physical networks that drove down costs while locking in customers, erecting formidable barriers to entry.
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When the federal government sued to break up Standard Oil, the Supreme Court acknowledged business acumen was important to the company’s early success, but concluded that was eventually supplanted by a single-minded determination to drive others out of the market.
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Amazon hasn’t yet reached the same market share as Google or Facebook but its position is arguably even more impregnable because it enjoys both physical and technological barriers to entry. Its roughly 75 fulfillment centers and state-of-the art logistics (including robots) put it closer, in time and space, to customers than any other online retailer.
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“Just like people joined Facebook because everyone else was on Facebook, the biggest competitive advantage AT&T had was that it was interconnected,”
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Early in the 20th century, AT&T began buying up local competitors and refusing to connect independent exchanges to its long-distance lines, arousing antitrust complaints. By the 1920s, it was allowed to become a monopoly in exchange for universal service in the communities it served. By 1939, the company carried more than 90% of calls.
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After AT&T was broken up into separate local and long-distance companies in 1982, telecommunication innovation blossomed, spreading to digital switching, fiber optics, cellphones—and the internet.
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“There should be hundreds of Yelps. There’s not. No one is pitching investors to build a service that relies on discovery through Facebook or Google to grow, because venture capitalists think it’s a poor bet.”
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At that same hearing Jeffrey Katz, then the chief executive of Nextag, responded, “That is like saying move to Panama if you don’t like the tax rate in America. It’s a fake choice because no one has Google’s scope or capabilities and consumers won’t, don’t, and in fact can’t jump.”
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In 2013 the U.S. Federal Trade Commission concluded that even if Google had hurt competitors, it was to serve consumers better, and declined to bring a case. Since then, comparison sites such as Nextag have largely faded.
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The different outcomes hinge in part on different approaches. European regulators are more likely to see a shrinking pool of competitors as inherently bad for both competition and consumers. American regulators are more open to the possibility that it could be natural and benign.
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Internet platforms have high fixed and minimal operating costs, which favors consolidation into a few deep-pocketed competitors. And the more customers a platform has, the more useful it is to each individual customer—the “network effect.”
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But a platform that confers monopoly in one market can be leveraged to dominate another. Facebook’s existing user base enabled it to become the world’s largest photo-sharing site through its purchase of Instagram in 2012 and the largest instant-messaging provider through its purchase of WhatsApp in 2014. It is also muscling into virtual reality through its acquisition of Oculus VR in 2014 and anonymous polling with its purchase of TBH last year.
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Once a company like Google or Facebook has critical mass, “the venture capital looks elsewhere,” says Roger McNamee of Elevation Partners, a technology-focused private-equity firm. “There’s no point taking on someone with a three or four years head start.”
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when Google launched its own comparison business, Google Shopping, those sites found themselves dropping deeper into Google’s search results. They accused Google of changing its algorithm to favor its own results. The company responded that its algorithm was designed to give customers the results they want.
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As the dominant platform for third-party online sales, Amazon also has access to data it can use to decide what products to sell itself. In 2016 Capitol Forum, a news service that investigates anticompetitive behavior, reported that when a shopper views an Amazon private-label clothing brand, the accompanying list of items labeled “Customers Who Bought This Item Also Bought,” is also dominated by Amazon’s private-label brands. This, it says, restricts competing sellers’ access to a prime marketing space
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In the face of such accusations, the probability of regulatory action—for now—looks low, largely because U.S. regulators have a relatively high bar to clear: Do consumers suffer?
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“We think consumer welfare is the right standard,” Bruce Hoffman, the FTC’s acting director of the bureau of competition, recently told a panel on antitrust law and innovation. “We have tried other standards. They were dismal failures.”
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What would remedies look like? Since Big Tech owes its network effects to data, one often-proposed fix is to give users ownership of their own data: the “social graph” of connections on Facebook, or their search history on Google and Amazon. They could then take it to a competitor.
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A more drastic remedy would be to block acquisitions of companies that might one day be a competing platform. British regulators let Facebook buy Instagram in part because Instagram didn’t sell ads, which they argued made them different businesses. In fact, Facebook used Instagram to engage users longer and thus sell more ads
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Ben Thompson, wrote in his technology newsletter Stratechery. Building a network is “extremely difficult, but, once built, nearly impregnable. The only possible antidote is another network that draws away the one scarce resource: attention.” Thus, maintaining competition on the internet requires keeping “social networks in separate competitive companies.”
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How sound are these premises? Google’s and Facebook’s access to that data and network effects might seem like an impregnable barrier, but the same appeared to be true of America Online’s membership, Yahoo ’s search engine and Apple’s iTunes store, note two economists, David Evans and Richard Schmalensee, in a recent paper. All saw their dominance recede in the face of disruptive competition.
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It’s possible Microsoft might have become the dominant company in search and mobile without the scrutiny the federal antitrust case brought. Throughout history, entrepreneurs have often needed the government’s help to dislodge a monopolist—and may one day need it again.