It’s Time to Break up Big Tech

 /  Oct. 20, 2019, 4:40 p.m.


warren
Elizabeth Warren, one of the fiercest opponents of Big Tech

It’s hard to read the news without coming across a discussion of Big Tech companies: between shopping on Amazon, buying apps on the AppStore and socializing on Facebook, technology has become an integrated part of our society. With the recent Amazon purchase of Whole Foods, expanding its seemingly endless product offers, to the merger between Sprint and T-Mobile, the amount of players in the “free market” seems to be shrinking. Republicans and Democrats alike have sounded their alarms, highlighting that Big Tech is harming both workers of well-known companies and its consumers by destroying competition and stifling innovation. In order to rekindle the innovative spirit of the technological market and, thus, to better the situation of consumers, the current Big Tech superpowers must be broken up. This will allow the rebirth of a market that forces big companies to innovate in order to profit.

The History of Antitrust Laws

The United States has a history of breaking up large companies. In the late 1800s, the railroad, oil, steel, and sugar industries came to be dominated by very few competitors, leading to the formation of monopolies. The most well known were US Steel and Standard Oil, which controlled the entire industries of oil and steel, respectively, allowing them to control the supply of their products as well as the price of their goods. Americans stood adamantly against the formation of monopolies, as they destroy the idea of laissez-faire that the American economy was founded upon. The very essence of capitalism assured that competition would ensure affordable prices and high-quality goods. However, as these industries became the sole providers of their markets, and thus did not have incentives to provide better products to their consumers, they became wealthier at the expense of the buyer. Thus, the federal government was forced to bust many of these large businesses, also known as trusts, with the newly created “antitrust” laws as a means of protecting the consumers.

The first of these antitrust acts was the Sherman Act, passed in 1890. The Sherman Act aimed to prevent collusion between companies, which led to unfair competition on the market. The Clayton Act was passed in 1914, which prevented businesses from merging and forming a single company to gain a monopoly on the market: the act would ultimately prevent mergers and acquisitions that would stifle competition from occurring. Lastly, the Federal Trade Commision Act, passed in 1914, created a federal agency to monitor and track unfair business practices that might harm competition.

The antitrust laws of the 1800s seem vastly inapplicable to the role of technology giants today. The goal of antitrust laws was to protect consumers. However, with services like Facebook, which is free, and Amazon, which might actually lead to lower prices, monopolies in the tech sector seems to lead to increased benefits for consumers. Thus, monopolies with Big Tech seem unproblematic and a trivial issue; the lack of direct harm to the consumers has allowed tech monopolies to fly under the radar. However, upon a closer inspection, the danger posed by these companies, and the necessity of antitrust laws, become clear.

The Role of Big Tech

The United States economy has been on an upward trend, which can mainly be attributed to the tech sector. Companies that drive the soaring S&P 500 growth are all tech firms: Apple, Alphabet, Facebook, Amazon, and Microsoft make up 37 percent of these total gains while the rest of the US economy grew by less than 1 percent.

With the tech sector gaining economic prominence and a few companies driving its growth, the rest of the country has become wary. For example, Apple came under intense scrutiny in Apple Inc v. Pepper, a case that reached the Supreme Court, for only allowing iPhone users to download apps from the AppStore, effectively forcing app developers to use the AppStore as opposed to its competitors—such as the Google Play store—if they wanted to reach the millions of Apple product users. Moreover, Amazon has been known to lower prices in order to crowd other competitors out of the markets, and Facebook has a long line of privacy scandals. As people become more aware of the growing power of the tech sector, many politicians are calling for the enforcement of antitrust regulation to break up these large monopolies. 

In fact, busting Big Tech seems to be a rather bipartisan issue, with prominent Republicans and Democrats calling for better enforcement of antitrust on big tech companies. Senator Elizabeth Warren (D-MA) condemns big tech companies for having too much power over the American economy and democracy; they’ve managed to “bulldoze competition, use our private information for profit, and tilt the playing field against everyone else… [hurting] small businesses and stifling innovation.” Senator Josh Hawley (R-MO) calls companies such as Facebook and Google “creepy” for the massive amounts of data they are able to collect from users. Whether it be a competition issue, a freedom of speech issue, or a privacy issue, breaking up big tech has attracted supporters (as well as critics) from both the left and the right.

Towards the end of the Obama administration, congressional Democrats committed themselves to a new antitrust agenda that shifts the scope through which the federal government views the economy and antitrust regulation. First, rather than only regulating mergers that increase prices, the FTC now also has the grounds to regulate mergers that unfairly reduce competition. This is warranted by the fact that even if prices are lower (e.g., Amazon), a merger that reduces competition in the market would reduce wages, lead to jobs cuts, decrease product quality, and stifle innovation. These changes would ultimately harm consumers in the long term. Second, mergers would be presumed as anticompetitive and would be blocked unless the merging firms could establish the benefits of the deal. Both of these changes would force antitrust regulators to prove themselves innocent in the event of a merger and expand what the government would have previously labelled as an antitrust violation. Unfortunately, it appears to be too late to reap the benefits of enforcing this. While it will certainly prevent the Big Tech companies from engaging in future unfair mergers, this plan does little to break up the current monopoly they have already established.

Revitalizing Innovation in the Tech Sector

The lack of antitrust enforcement has allowed big information technology companies such as Google, Facebook, Amazon, and Apple to dominate the market and concentrate economic power. The power of the consolidated monopolies have hindered technological advancement in two ways.

First, because of their dominance on the market, big firms tend to innovate less and focus more on quarterly earnings as opposed to long-term investments. Thus, they tend to focus on slight product improvements rather than on groundbreaking research that leads to benefits for the consumers. The reasoning is simple: there is fundamentally no point to investing money in disruptive innovation (that could fail) when there is a monopoly. Apple illustrates a clear example of this phenomenon. In 2007, Apple debuted the iPhone. Apple’s product created a new market by increasing internet access, thus challenging the notion that one needs a laptop in order to access the internet. While Apple has evolved to collapse the internet into devices, such as watches, and a laptop-smartphone hybrid, the iPad, it has not seen much recent innovation comparable to its iPhone, iPad, or Apple Watch. Instead, its new products are not innovative and rather merely minorly improve their predecessors. While some might claim that technological innovation has reached a plateau (which would explain this lack of innovation), researchers at the McKinsey Global Institute report that there are twelve technologies, ranging from 3D printing to cloud technology, that can be truly disruptive and create massive transformations in the modern technology industry.Thus, while innovation is far from its peak, the incentive to innovate has reached an all time low because of the behavior of companies like Apple. 

Second, monopolies have an incentive to slow the pace of technological change in order to increase their profits from existing products. As a result, these large tech companies have been engaging in large mergers and acquisitions (M&As), which have been detrimental to innovation. Not only do these M&As allow big tech companies to purchase smaller players and redirect attention onto their own platforms rather than promote new innovation, such as AI technology, but they also prevent many small businesses from ever starting up in the first place. Empirically, David McLaughlin of the Washington Post writes that the five largest tech companies made 431 acquisitions worth $155 billion over the past decade. This, along with predatory pricing practices, have crippled smaller firms so much so that most have stopped entering the market and investors are more hesitant to invest in them. Indeed, tech giants are responsible for the choking of small technology startups: it has become harder for startups to secure an investment in order to get off the ground, with funding decreasing 22 percent since 2012. Moreover, even if these companies manage to get off the ground, tech giants are buying up AI companies and directing them to focus on their platforms instead. Over the last five years, 90 percent of AI startups in Silicon Valley have been acquired by leading tech companies. However, these acquisitions have seldom led to a successful product. Instead, these companies’ developing products are shelved or the technology is embedded as a feature in another core offering. Because of this, Ryan Kottenstette, the CEO and co-founder of Cape Analytics, finds that 95 percent of the impact of AI on the global economy has been undercut. 

Thus, retroactively enforcing antitrust laws (i.e., breaking up tech companies) would have clear benefits. The last major antitrust case involving big tech was the breaking up of Microsoft in the 1990s. The federal government sued Microsoft for violating antitrust laws for its attempt to expand its dominance beyond the computer operating systems market into the web browsing market. The settlement prevented a formation of a browser monopoly, leaving consumers with a plethora of search engine options. The government’s antitrust case was critical in clearing the path for current big tech companies, such as Google and Facebook, showing a clear benefit to the consumer. 

Retroactively enforcing these laws will also force the federal government to sue companies currently engaging in anticompetitive behavior that is responsible for dwindling innovation and competition. It would force companies to innovate and create cutting-edge technology in order to maintain their edge. It is only then that society will continue to advance technologically.

The Case Against Enforcing Antitrust Laws

Critics have contended that breaking up big tech companies won’t solve all the problems that have been highlighted. They contend that the enforcement of antitrust laws will not solve issues of high prices and privacy. For example, the purchase of Whole Foods by Amazon has allowed for the price of goods to actually decrease, meaning that consumers see a net benefit from the formation of the monopoly. Moreover, enforcement of antitrust laws would fail to give users any more privacy than before: spinning off WhatsApp from Facebook won’t make Facebook collect any less data. In fact, the very reason that users like Facebook is because of its ability to connect to vasts amount of people: it is a natural monopoly because with every new user, its value increases.

However, such critiques are superficial. For example, while Amazon appears to be slashing prices and helping consumers, a deeper look highlights Amazon’s ploy to dominate markets beyond e-commerce. This particular Amazon market strategy has been executed before with diapers. When there is competition in the market, Amazon cuts its prices down to undercut its competitors until they go out of business. As a result, Amazon is able to buy out its competitors, maintain a strong grip on the market, and gain dominance. In the case of Quidsi (Diapers.com), Amazon dropped its prices by 30 percent after Quidsi refused to be acquired by Amazon. If the trend had continued, Amazon would have lost over 100 million dollars over three months in diapers alone, which clearly shows that this was a temporary measure to rid Amazon of its competition. The price drop allowed Amazon to eat into Quidsi’s growth, making potential investors wary of putting their money into the company. Eventually, Quidsi gave in and the executives sold to Amazon.

In an age where online grocery services, such as delivery by Walmart, FreshDirect, and HelloFresh are becoming more common, Amazon appears to be employing such a strategy once again. The price for groceries at WholeFoods has dropped as much as 43 percent with revenues rising by 6 percent in an attempt to lure customers into shopping at Whole Foods, thus dampening its competitors’ market share. However, these price cuts likely won’t last long. In fact, after a short burst in sales, Amazon made prices higher than their original value. Consumers are already noticing that prices for certain brands, such as Clorox, Procter, and Nestle are rising again due to increased shipping costs, which are being passed down to consumers. 

Thus, a vital way to improve the status quo and incentivize productive innovation again is to implement antitrust laws. The comfort of dominance in the tech sector has allowed companies like Google, Amazon, and Facebook to sit comfortably without being innovative for too long. 

The Future for Big Tech Companies

While there has been an increase in discourse on the break up of Big Tech, many politicians still seem hesitant to make a definitive statement. Warren and Representative Tulsi Gabbard (D-HI) are the only candidates in the Democratic primary willing to openly advocate for the breaking up of Big Tech: the rest choose to side step with evasive answers about monopolies in general being harmful, rather than calling out specific tech companies. Senator Bernie Sanders (I-VT), the closest ideologically to Warren, chooses to focus on increasing the minimum wage for Amazon workers and calling out Amazon for not paying taxes, rather than calling for tech companies to be broken up. Many Democrats are leaning in the same direction: they elect to solve the problems within the tech companies by demanding taxes, regulations on privacy, and working standards, citing that breaking them up will not solve any of these problems. Breaking up Big Tech seems to be at the top of the agenda for only Warren, with almost all other candidates making vague statements about competition. 

On the other side of the aisle, President Donald Trump appears to agree with Warren, but not for the same reason. Since becoming president, he has openly criticized the media for silencing conservative views and advocates for cracking down on Facebook, Google, and Amazon. If re-elected, it is likely that he will continue to push the Department of Justice to further investigate into these large tech companies. Thus, with surprising forces working against Big Tech while others avidly defend it, the future of Big Tech looks incredibly uncertain.

The views expressed in this article are those of the author and do not necessarily reflect those of the Gate. The image featured in this article is licensed under the Creative Commons. The original photographer is Gage Skidmore. The license can be found here; the original photo can be found here.

Sophia Lam


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