How Stronger Antitrust Rules for Big Tech Could Help Consumers
Bipartisan effort could improve products and services as well as increase competition, experts say
A flurry of activity in the world of antitrust, from proposed legislation to key appointments, could make big tech firms change the way they do business. And that could be good news for consumers who are frustrated with the status quo.
As a Consumer Reports survey revealed in 2020, people have deep concerns about the outsize influence of America’s tech companies. Three out of 4 worry about the immense power wielded by platforms such as Amazon, Apple, Facebook, and Google. And 8 in 10 say the mergers and acquisitions that helped them grow undermine competition and consumer choice.
Lawmakers on both sides of the aisle seem to agree, pushing for antitrust legislation that could lead to much stronger regulation. If that happens—and experts are betting it will—it should prompt the biggest tech companies to offer better products and services.
“We’re at a tipping point,” says Sumit Sharma, senior researcher in tech competition for Consumer Reports. “Different agencies and legislators are coming at it from different angles, but they’re converging on the idea that these platforms have too much market power and reducing that dominance would result in more innovation and a better online experience for consumers.”
Making Tech Firms Play Fair
America’s tech companies have grown so big that they now compete and control the levers in marketplaces that they themselves operate. Proposals including CALERA would restrict their ability to do that, giving competitors a more even playing field and consumers more choice.
“It’s not just their sheer size but also their lengthy tentacles in different marketplaces that gives these companies unfair advantages,” says CR’s Sharma. “They often get to set market rules in those marketplaces that benefit their own businesses and shape markets in unprecedented ways.”
Amazon, for example, sells its own products alongside those from the retailers that rely on its platform, potentially using sales info gathered from the platform to identify ripe opportunities. Apple booted Fortnite from its App Store for developing an in-app purchasing system that shut Apple out of the transactions, ultimately lowering the price of the game. And Google takes a cut from the sale, purchase, and placement of an enormous swath of the ads that now appear online.
Consumer Reports contacted Apple, Amazon, Facebook, and Google for comment for this story, but had received no response at the time of publication.
And the larger those companies get, the bigger the advantages.
“Both Facebook and Google were caught flat-footed as consumers moved from desktops to mobile,” says Alex Petros, policy counsel with Public Knowledge, an advocacy group based in Washington, D.C. And both solved that problem by throwing big money at it.
Facebook bought rapidly rising rival Instagram for the then-huge sum of $1 billion. And Google agreed to pay billions annually to Apple to make its search engine the default choice on iPhones worldwide. And, according to Petros, consumers probably missed out on a more diverse internet experience that might have featured a mobile-centric search rival to Google, and social media alternatives to Facebook.
Heightened Scrutiny of Mergers
Mergers were a key tool that helped the biggest companies grow and gain market power. Under current antitrust law, it’s up to regulators to make the case that a proposed merger would stifle competition. But under the Klobuchar bill, as well as some other proposed laws, the burden of proof would shift to the companies.
The legislation lays out very specific parameters for mergers: In deals of more than $5 billion, or involving a company that’s worth more than $100 million, or resulting in one company gaining a market share of 50 percent or more, the merging firms would have to prove that the merger is not likely to harm competition.
And the government would monitor these deals to see whether companies kept the promises they made.
“If these conditions had been on the books previously, they might have scuttled Facebook’s acquisition of Instagram or WhatsApp or some of Google’s many acquisitions in ad tech that helped these companies to achieve their current market power,” says CR’s Sharma.
More Money for Enforcement
For years, federal regulators with limited resources have had to contend with tech companies that have annual revenue in the billions and have the incentive to spend as much as necessary to ensure the continued growth of their businesses. For example, Amazon and Facebook now spend $18 million to $20 million per year on their lobbying efforts.
Lawmakers are pushing to beef up resources at two key watchdogs: the Federal Trade Commission and the Department of Justice. Klobuchar’s bill would bump the FTC’s annual budget from $351 million to $651 million, while the budget of the Department of Justice’s antitrust division would more than double, from $184.5 million to $484.5 million.
Among other things, that money would be used to hire staffers with the technical expertise to pursue complex antitrust cases, reversing a long-term trend; the FTC’s employee count dropped from 1,719 in 1980 to 1,160 at the end of last year, according to the agency.
The legislation would also establish a new division in the FTC charged with researching the impacts of mergers on markets.
The boost to the budgets would be funded by an increase in the premerger filing fees that the very largest companies would pay. Proposed laws would also give the agencies a new revenue stream with the power to collect fines from first-time antitrust violators.
While these changes don’t put federal agencies on even footing with billion-dollar companies, they may make it easier for regulators to choose between cases that are sure winners and those that present a tougher path to settlement.
Right now, “you don't want to spend money on a case you might lose,” says Alex Harman, competition policy advocate at Public Citizen, an advocacy group based in Washington, D.C. “So the result is under enforcement.”
Under the new scenario, a company like Facebook might have faced far more resistance to its plans to acquire WhatsApp and Instagram. And Google might not own YouTube, Nest Labs, Fitbit, and some 230 other properties.
Clarification: This article, originally published on March 11, 2021, has been updated to clarify a few points: Lina Khan is a potential nominee to the Federal Trade Commission; firms that wish to merge must prove that the merger is not likely to harm competition; and the very largest companies that file for a merger will pay increased filing fees.