Elizabeth Warren, Big Tech, and the History of Antitrust Law in the U.S.
Last week, Democratic presidential candidate and Massachusetts Senator Elizabeth Warren released a plan to “break up” the growing monopolies owned by Facebook, Google, and Amazon. In it, she argues that today’s big tech companies have accumulated vast amounts of power over our economy, democracy, and society, which they have used to eliminate competition, stifle innovation, and exert influence over policymakers. To address Big Tech’s accumulation of power and anti-competitive behavior, Warren calls for new legislation that would regulate large tech platforms and the appointment of federal regulators who will enforce our antitrust laws and retroactively terminate anti-competitive mergers.
Big Tech is Sorry! - Data Driven Investor
Big Tech is sorry. After decades of rarely apologizing for anything, Silicon Valley suddenly seems to be apologizing…
Since its release, Warren’s plan has become a topic of public discussion. Predictably, allies of the technology industry are arguing that Warren’s claims are false and that her plan will ultimately hurt consumers and the technology industry. In the academic and legal circles, Warren’s plan has been met with mixed reviews. Elane Fox, a professor of trade regulation at the New York University School of Law, commended Warren’s ideas; however, she also warned that they might not be easy to implement due to the conservative interpretation of antitrust law by our courts. On the other hand, Tim Wu, a professor at Colombia University and antitrust scholar, supported Warren’s call for the retroactive undoing of problematic mergers.
Warren’s plan is not perfect; however, she is right to call for increased scrutiny of Big Tech. For years, Big Tech companies have amassed power and profits through tactics that violate the spirit of our country’s competition laws. It is about time these companies faced genuine consequences for their actions.
History of Antitrust Law in the United States
In 1890, Congress passed the Sherman Antitrust Act in order to address the problems posed by trusts, which included the elimination of competition, exclusion from trade and commerce, high prices, limited production, poor wealth distribution, and other forms of perceived economic oppression.” Instead of drafting specific legislation to target the trusts, the Sherman Act employs the language of the common law. To that end, section 1 of the act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” Meanwhile, section 2 of the act makes it illegal to “monopolize or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce.”
According to Wayne Collins and Barak Orbach, the framers of the Sherman Act utilized common law terminology for two reasons: firstly, it enabled federal courts to apply common law principles, which protected fair competition in trade, to anti-competitive business activities. Secondly, the common law process empowers the federal courts to adjust antitrust jurisprudence in order to accommodate changes in our understanding of economics as well as emerging business practices.
Our understanding of antitrust law has changed significantly over time. From the 1890s to the 1960s, the Supreme Court continuously acknowledged that the preservation of competition was the ultimate objective of antitrust law. However, this idea lost mainstream support during the 1960s and 70s due to Robert Bork’s critiques of antitrust jurisprudence. In The Antitrust Paradox, his most well-known critique of antitrust jurisprudence, Bork dismissed the utility of competition in antitrust law. Instead, he argues that the legislative history of the Sherman Act “displays the clear and exclusive policy intention of promoting consumer welfare.” For Bork, consumer welfare meant allocative efficiency; however, the popular meaning of the phrase simply refers to the benefits a buyer derives from the consumption of goods and services.
It didn’t take long for Bork’s ideas to reach the Supreme Court. In 1979, in Reiter v. Sonotone, the federal government filed an amicus brief in which it argued that the “primary purpose of the Sherman Act was consumer protection.” To support their position, the government cherry-picked quotes from the Congressional Record that refer to consumers and prices. Ultimately, the Supreme Court adopted the government’s claim, declaring that “Congress designed the Sherman Act as a ‘consumer welfare prescription.”
Big Tech and the Current Antitrust Framework
Since the Supreme Court’s decision in Reiter, the goal of U.S. competition laws has been the promotion of “consumer welfare.” However, our current “consumer welfare” approach does not adequately address the unique issues posed by Big Tech.
Big Tech companies have consistently maintained an advantage over their competitors through various types of anticompetitive conduct, including the acquisition of current or potential competitors. The best example of this is Facebook’s acquisition of Instagram, which has reinforced Facebook’s control over social media. Without Instagram, Facebook controls approximately 42% of the market for social media networks. With Instagram, it's market share jumps from 42% to 59%. If you need further proof of Facebook’s dominance, just look at the chaos and uproar that ensued as a result of the Facebook-Instagram-Whatsapp outage on Wednesday. Furthermore, Amazon controls approximately 50% of the e-commerce market and has acquired several of its competitors in that space, including Zappos and Diapers.com.
Big tech companies also maintain their position and power by undercutting competitors on their platforms. In recent years, Google has been accused of favoring its own results and eliminating material from its competitors–including Yelp and TripAdvisor. When the companies complained, Google reportedly threatened to remove them from its search results entirely.
Amazon has a long history of using ruthless predatory pricing tactics to eliminate its competition. Amazon came to dominate the book market by selling print and e-books at cut-rate prices. Similarly, Amazon undermined Diapers.com by cutting its prices for infant care products, effectively forcing the company to sell to Amazon. Furthermore, the company undercuts third-party sellers on its marketplace by manufacturing its own versions of popular and profitable products and offering them at a lower price point. Like Google, Amazon has also been accused of favoring its own products over those from third-parties.
Over the years, Amazon, Google, and Facebook have largely avoided discipline from federal regulators because consumers derive immediate benefits from these goods and services, including low prices and increased efficiency. In other words, these companies are able to satisfy the consumer welfare standard despite their anti-competitive conduct.
All in all, Big Tech’s ability to avoid antitrust scrutiny while amassing vast power and wealth through anti-competitive tactics clearly indicates a need for legal change. Luckily, our antitrust laws allow the courts to adjust the current framework.
Note: the market share calculations used to analyze Facebook’s dominance over social media market are my own. I am more than happy to provide further information about my calculations upon request.