By: Brandon Sim

In just over a decade, four companies, namely, Google, Amazon, Facebook and Apple (known as Big Tech) have completely revolutionised modern technology. With a combined market capitalisation greater than the GDP of the United Kingdom, their dominance and impact on our lives and in various industries has been staggering. However, the revelation of controversial business practices over the years has led to greater public scrutiny than ever before, with public discontent at a tipping point.

 

Curbing the Competition

Abuse of Dominance

Having a dominant position in a market does not make a firm inherently anti-competitive but in this case, Google and Amazon have been criticised for using their dominant positions to engage in anti-competitive behaviour.

Amazon has been criticised for allegedly using an abusive tactic known as predatory pricing, where a firm offers a good or service at a price deliberately set below the prices charged by competitors. The alleged incident occurred in 2009, when then-competitor Quidsi was a rising e-commerce firm. After failing to acquire Quidsi, Amazon started cutting prices on infant products, which affected Quidsi’s subsidiary, Diapers.com. The back-and-forth price war lasted for months. Eventually Quidsi was unable to keep up and sold its business to Amazon. Despite incurring losses during the price war, Amazon was able to eliminate a competitor and after cementing its dominant position, it recouped its losses by raising prices later on. Without any viable substitutes, consumers were forced to accept the change in prices. [1]

Another abusive tactic that firms may use is exclusive dealing, where the dominant player engages in an agreement that contractually binds other businesses into working exclusively with itself. Google was charged with a fine of €1.49 billion by the European Commission for leveraging its dominant position in search and digital advertising to prevent rivals from competing in the online search advertising market.

Google included clauses in its contracts that required publishers to reserve the most profitable spaces on their search results pages for Google’s adverts. The anti-competitive behaviour stifled Google’s rivals, stunted innovation and forced website owners to rely almost solely on Google. [2]

Mergers & Acquisitions (M&A)

Similar to the nature of dominant players in a market, not all mergers or acquisitions are anti-competitive. Various factors such as the effect on consumer prices come into play when determining whether a merger or acquisition should be approved, but some factors may be more difficult to prove than others.

Facebook has entrenched itself as the dominant player in the social media market, taking 4 of the top 6 spots for social media sites with the most users through its acquisition of WhatsApp and Instagram. While both acquisitions were passed by the U.S. Federal Trade Commission (FTC), there are now concerns being raised on whether these acquisitions should be reversed. The stifling of innovation and a lack of direct competition for Facebook has been a major point of contention. [3]

An argument can also be made that an indirect impact M&As have on competition is that it creates industry incentives for start-ups. From 2013 to 2018, Big Tech has made over 200 acquisitions, with no resistance from any antitrust regulators. [4] The aggressive strategy of Big Tech buying out start-ups creates a landscape where start-ups are incentivised to develop products that can help diversify the offerings of Big Tech and without directly competing with them. This ensures that Big Tech firms are unlikely to face any real competitors, and further cements their dominance, which among other things will stifle innovation in the long run. [5]

A Dual Role

A defining feature of the digital economy has been the rise of platforms and ecosystems, such as iOS and the App Store. In addition, Big Tech firms like Amazon, Apple and Facebook are both owners and sellers on these platforms. This creates a dual role for these companies that may give rise to anti-competitive practices due to a conflict of interest.

The huge debacle surrounding Apple and Spotify has ignited a conversation on whether Apple is engaging in anti-competitive practices. With Apple Music and Spotify being direct competitors, pricing is a crucial factor in determining a consumer’s choice of service. Apple’s App Store regulations dictate that digital services such as Spotify must pay a 30% tax on purchases made through Apple’s payment system, which would artificially inflate the price of a Spotify premium subscription. The alternative to paying a tax would be an imposition of various restrictions on Spotify. For instance, users are unable to upgrade to a premium subscription inside the app, and Spotify has also been locked out of other Apple services such as the Apple Watch and HomePod.

It can be argued that these regulations undercut Spotify and puts both applications on an uneven playing field, with Apple Music having an unfair competitive advantage. [6]

An End to Self-regulation

The problems posed by Big Tech has seen an unusual bipartisan support for regulation from democrats such as House Speaker Nancy Pelosi to Republicans like Senator Ted Cruz, with a slew of proposals to regulate Big Tech.

 

Breaking Big Tech

An idea that has been proposed by various democrats such as the Head of the House antitrust subcommittee David Cicilline, has been to separate out the functions of Big Tech firms. [7] This sentiment has been echoed and made into a campaign promise by U.S. Presidential Candidate Senator Elizabeth Warren.

Warren’s proposal to break up Big Tech consists of two major steps:

First, by passing legislation that designates large tech platforms into a category known as ‘Platform Utilities’ and prohibiting the company from owning both the platform and any participants on that platform.

Second, by appointing regulators to unwind anti-competitive mergers such as Facebook, Instagram and WhatsApp.

In practice, Warren’s proposal would include decoupling Apple and its App Store, Google Search and Google Ads, breaking up Amazon and Whole Foods, and many others. [8]

While Warren’s proposal would seem to solve some of the anti-competitive practices mentioned previously, there has been some criticism on her ideas.

Most critics state that breaking up Big Tech is a drastic measure that could have unintended consequences and might not fix the root of the problem. [9] If Amazon is unmerged with Whole Foods and Zappos, it doesn’t ensure that Amazon will no longer engage in anti-competitive practices. In addition, firms like Facebook provide their services for free in exchange for personal data to be used for ads and ad targeting, from where it makes most of its revenue. Decoupling Facebook from its ad business could force Facebook to start charging consumers for their services, which would end up hurting consumers.

The influence of lobbying and the circulation of donations from Big Tech also makes the success of such a drastic measure less realistic and will mount a difficult challenge for Warren. [10]

Sharing Data

A less drastic solution that has been proposed is to make Big Tech share data with smaller firms. Proposed by Professor Viktor Mayer-Schönberger at the Oxford Internet Institute, he contends that data is the currency of digital economy and could be used to level the playing field.

Mayer-Schönberger argues that splitting up businesses such as Google Maps and Google Search would only make those services less reliable. He asserts that because innovation is dependent on data, large companies should be required to share anonymised data so that start-ups have a chance to compete.

Non-discrimination Principle

On the other hand, Hal Singer, a senior fellow at George Washington Institute of Public Policy agrees with Mayer-Schönberger that breaking up Big Tech could cause inefficiencies but asserts that a non-discrimination policy is the way to go.

A non-discrimination principle would ensure that Apple does not give preferential treatment to its own services such as Apple Music and will also help put companies like Spotify, which does not own a platform, on equal footing. [11]

 

A Balancing Act

When examining the issues of Big Tech and weighing our options and solutions, it is important to strike a balance between the actions taken by the government, firms and consumers.

Big Tech can and should do more to regulate themselves and curb their anti-competitive tendencies, which will help appease lawmakers and consumers, and avoid an implementation of harsher regulations in the future.

As data continues to be increasingly important in the burgeoning digital economy, consumers can do their part and learn to be shrewd while handling their personal data.

Lawmakers must ensure that legislation does not overcorrect the problems of Big Tech, which could unintentionally hurt consumers. Adapting the law to regulate tech companies will involve many stakeholders across multiple areas such as property, privacy, consumer protection and more. As succinctly worded by Maurice Stucke, an antitrust expert at the University of Tennessee, ‘Beware of anyone who offers a simple elixir’. [12]

 

References

  1. https://www.yalelawjournal.org/note/amazons-antitrust-paradox
  2. http://europa.eu/rapid/press-release_IP-19-1770_en.htm
  3. https://www.cigionline.org/articles/tech-sector-mega-mergers-are-curbing-competition
  4. https://www.vox.com/2018/3/4/17062538/amazon-ring-acquisitions-2018-apple-google-cbinsights
  5. https://www.nationalreview.com/2019/05/breaking-big-tech/
  6. https://www.wired.com/story/spotify-apple-complaint-warren-antitrust-issue/
  7. https://www.ft.com/content/561b8546-355c-11e9-bd3a-8b2a211d90d5
  8. https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c
  9. https://variety.com/2019/digital/news/us-antitrust-break-up-facebook-google-amazon-apple-1203232588/
  10. https://www.technologyreview.com/s/611488/gary-reback-technologys-trustbuster/
  11. https://www.technologyreview.com/s/613640/big-tech-monopoly-breakup-amazon-apple-facebook-google-regulation-policy/
  12. https://www.technologyreview.com/s/613628/big-tech-breakup-regulation-antitrust-apple-amazon-google-facebook-doj-ftc-policy/