The Fangs: What Is To Be Done?

Facebook, Amazon, Netflix and Google have disrupted the way we communicate, shop, watch movies and other “content’, and search the world’s information. With the exception of Netflix, which competes vigorously with other content providers and bedroom activities, the so-called FANGs have accumulated what Americans call unacceptable market power and Europeans call a dominant position. Facebook “exercise[s] massive market power … [and] has often sought to frustrate our work by giving incomplete, disingenuous and at times misleading answers to our questions,” said Damian Collins, chair of the parliamentary Digital, Culture, Media and Sports Committee. “Amazon is the titan of twenty-first century commerce. … Elements of its structure and conduct pose anticompetitive concerns,” writes London-born Columbia University Law School Fellow Lina Kahn in a much-read article in The Yale Law Journal. “Google is undoubtedly one of the largest and clearest monopolies in the world. [It] … monopolizes search and advertising,” charges an online retailer.

But these internet giants are also “amazing companies with great innovative potential,” Margrethe Vestager, the European Commission’s competition enforcer who is generally regarded as the most effective of the world’s regulators in extracting fines from and changing the behavior of the three giants, told American television audiences last week. That was shortly after announcing the latest in a trilogy of fines totaling close to $10 billion on Google for violating EU antitrust rules. Although that’s only a bit more than its parent Alphabet’s net income in a single quarter ($8.94 billion in fourth quarter 2018), Vestager says Google is altering its anticompetitive practices for fear of facing more or worse in the future.

She might be right. Even deep-pocketed Google (cash pile more than $109 billion) seems to be ready to capitulate. Oliver Bethell, the company’s London-based Legal Director for Competition, recently told an audience of regulators, academics, lobbyists and lawyers gathered in Washington for an annual meeting of these financial and reputational beneficiaries of regulatory tussles, “Technology companies need to take seriously the calls for reform; whether or not we agree with all the concerns being raised …”. This is a reversal of the position taken by the company only last September, when Google shunned a Senate Intelligence Committee hearing, leaving a much-televised empty chair as a symbol of its defiance of its elected critics, just as Facebook CEO defied a parliamentary committee by refusing its invitation to appear. Regulators and legislators do not take kindly to defiance.

Like commissioner Vestager, regulators the world over, especially in America, are now trying to figure out how to retain the baby, innovation, while throwing out the dirty bathwater, the anticompetitive acts of three powerful internet giants. The Federal Trade Commission has assembled a 17-lawyer task force, “dedicated to monitoring competition in US technology markets … and taking enforcement action where warranted.” Although the social and political attitudes underlying competition policy differ in America from those in Europe, this new American interest in applying competition policy to the big internet companies should increase the already-close cooperation between UK and U.S. enforcement authorities. As Ariel Ezrachi, Director of Oxford’s Centre for Competition Law Policy, noted in a recent paper, “The benefits of the close cooperation between the EU and the US cannot be overstated.” That cooperation does go some way toward supporting commissioner Vestager’s response to charges that her policies are aimed at companies because they are American, “This is not about a company being based in America…. It is about consumer choice.” The commissioner might have added that her investigations focus on US companies because there are no great European internet companies to investigate, perhaps because regulation has stifled incentives to innovate. But that is something that no self-respecting member of the Brussels bureaucracy, especially one campaigning to succeed Jean-Claude Juncker as the president of the European Union, cares to emphasize.

Like its regulators at the FTC, America’s legislators are preparing to attempt to de-FANG the three fangs that have market power. Representative David Cicilline, chairman of the House Antitrust Subcommittee, is calling for a break-up of the large tech companies along the lines of the Glass Steagall banking act of 1932, as is Massachusetts Senator Elizabeth Warren, campaigning for the Democratic party’s presidential nomination on a policy-intensive platform. Such a move, says Vestager, should be “a very, very last resort”, presumably to be used only if fines fail to end anticompetitive behavior.

So, as Lenin asked in a different connection, “What is to be done?” Clearly, EC authorities are playing a winning hand, and if commissioner Vestager is right, are changing some of the behavior the EC believes is anticompetitive. American regulators, awakened from a long slumber, can use the regulatory tools already available to weaken the companies’ market power, beginning by preventing these companies from acquiring more potential competitors. Google can be required to spin off into a separate company the services it favors on its search engine, leveraging power in one market to disadvantage competitors in another. Amazon, which is less of a policy problem, can be prevented from strangling potential competitors in their cradles by pre-announcing the development of its own competing service, and deploying predatory pricing to eliminate smaller competitors in some markets. And Mark Zuckerberg can be prevented from integrating Facebook, Instagram and Whatsapp, as he plans to do, a restructuring that would prevent regulators from unscrambling that monopoly omelet. German authorities, taking action while their American counterparts ponder, are moving in that direction.

The creation of competitive alternatives for users would also go part way to addressing what professor Ezrachi calls “degradation of privacy by dominant providers.” If Facebook does not or will not do a better job of obtaining permission to use data it does not own – personal facts that belong to its customers and what these days are called their “friends” – competition would empower unhappy users to switch platforms. Throw in a change in the law that makes Facebook, like other media, libel for whatever it publishes, and the days when we can be Zucked, as former Facebook advisor and current shareholder Roger McNamee puts it in his book of that title, might be over.

Regulation should not be undertaken lightly. It can be used by powerful incumbents to make it more costly for newcomers to enter: lawyers don’t come cheap. But when the invisible hand atrophies, the long arm of the law is at times the only available protector of consumers.