Expert Analysis

An Antitrust Dilemma: Should We Break Them Up / Open

We all heard of Senator Elizabeth Warren’s proposal as to how we should be dealing with the large digital companies: “Break up or break open!”  Running for president of the United States, Warren proposed using the antitrust laws to do just that. Her proposal must have resonated with many as she received much attention after her recipe to manage with the digital companies.

Tom Wheeler from Brookings Institute tackles Warren’s proposal in his article[1] and makes an important analogy with the industrial age:

“There can be little doubt that the major digital companies have gained a level of economic control akin to the industrial barons of the Gilded Age. It is important to take steps to introduce much needed competition into the digital marketplace. The question, however, is whether the approach that worked with industrial barons is also the best for dealing with the internet barons. Clearly, a more active review of mergers is necessary, even when the acquired company is comparatively small. However, the other prong of antitrust policy, the physical breakup of dominant companies, may not be the only path to competition in a world where the tools of dominance are virtual rather than physical. Breaking up the digital companies into smaller clones may reduce their size, but each new company will still possess the virtual assets that enabled their parents’ anticompetitive activities in the first place: the databases full of information about you and I. Break open that hoard of digital information, make it available to innovators and competitors, and the marketplace can function. Requiring competitive interconnection to databases would have the effect of an “internal break up” by going after the source of its market control.”

German Competition Authority, Bundeskartellamt seems to be the most proactive and also the strict authority, as it is the first to implement additional mechanisms for the active review of mergers, also referred to by Wheeler above. Konrad Ost, Vice President of the Bundeskartellamt, stated: “The new provisions which have been introduced in Germany complement merger control particularly in technology and innovative-driven markets with the aim to prevent any possible market foreclosure effects and barriers to entry and to protect the potential for innovation.”

In 2017 merger control thresholds in Germany (also jointly in Austria) were supplemented with a threshold based on a purchase price criterion. Prior to this, corporate mergers were notified and examined only if the turnover achieved by the companies involved in the merger reached certain minimum turnover thresholds. Now with the new rules, mergers also have to be notified to the competition authorities if the consideration exceeds a certain value and the target company has substantial operations in the domestic market. This is called the transaction value threshold. The aim of the transaction value threshold is to be able to analyze mergers, where the target company does not yet reach a relevant turnover threshold but has great competitive market potential as reflected in the value of the consideration.[2] Increasing similar merger review rules around the world may work to restrain the formation of tech giants that would end up reducing the competition in the concerned markets.

Another aspect to consider is the debate Lisa Khan discusses in her article “Amazon’s Antitrust Paradox”.[3] Being a competition lawyer herself, her argument is part of a larger debate about whether the current paradigm in antitrust has failed. Focusing on Amazon and its market dominance, she states “As Amazon continues both to deepen its existing control over key infrastructure and to reach into new lines of business, its dominance demands the same scrutiny.” Yet the level of scrutiny remains unchanged regardless of the company’s size or dominance.

She asks the following questions and adds without considering these questions, we risk permitting the growth of powers that we oppose but fail to recognize:

  • First, does our legal framework capture the realities of how dominant firms acquire and exercise power in the internet economy?
  • What forms and degrees of power should the law identify as a threat to competition?

Well, it is no secret that the big digital companies benefit from the network effect; meaning the more people are on their service, the more attractive their platform becomes. What Facebook has succeeded in its early days against Myspace, will most probably never happen again; as the quality of the product will no longer suffice to reverse today’s competition balance. Today, the product (no matter how advance and better it may be) will not be able to compete with its rivals like Facebook, as it would require beating the data pool of billions of users. Additionally, advertisers too want to do business with platforms with more users allowing them to achieve their desired outreach. Choice of the advertisers coupled with the volume of users only reinforce the obstacle against innovation and competition.

As Wheeler discussed in his article, in 1992 Congress required open access to the video content essential for satellite to become a viable competitor, allowing a medium for competitors to grow. Considering what was done back in 1992 and provided that this time the asset to foster competition is digital, today new measures must be taken to ensure that these digital assets, corresponding to user’s information must similarly be open and available. In the meantime, additional measures must be taken, and regulations must be designed to allow the monetization of data, so that the open and available data pools will not lead to a catastrophe of privacy violations. If this can be done properly, having open and available data for all will take away big digital companies’ means to dominate their market.

One good example for paving the way for innovation by removing competition barriers is the open data policy for the largest banks in the United Kingdom. Before this initiative, consumers were only able to work with banks who were holding their information. Under the open banking initiative, however, the consumer’s digital information is accessible by third parties with the consumer’s permission. In the U.K. there are around 200 companies, who are working to develop new apps for consumers by way of benefiting from the open banking initiative.

Today’s antitrust laws were designed in the 19th and 20th centuries, reflecting the market dynamics and the industrial strengths of the time. There is no doubt that they will have to undergo a major transformation to meet the needs of the digital economies; yet this transformation should be extensive enough to tackle the issue from various different aspects.

Warren’s proposal may sound exciting at first; yet if what she proposes is not supported with certain other measures and initiatives such as data monetization, open and available data and stricter merger controls, they will probably fail to design an overarching and effective competition policy that would enable a competition-friendly digital economy.

References:

[1] https://www.brookings.edu/blog/techtank/2019/04/11/should-big-technology-companies-break-up-or-break-open/

[2]https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2018/09_07_2018_Leitfaden_Transaktionsschwelle.html

[3] https://www.yalelawjournal.org/note/amazons-antitrust-paradox

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