The following is a policy brief I put together for a writing class at USC. I liked this piece enough that I want to share it. It is meant to be a letter to the Chairman of the Federal Trade Commission (FTC) but I modified it slightly to be more conducive to this blog format. Enjoy!
The FTC Bureau of Competition, via enforcement of past antitrust legislation, vows to act as an opposing force to “unfair methods of competition” and “corporate acquisitions that may substantially lessen competition” (A Brief Overview…). Unfortunately, a cursory glance at the technology industry landscape reveals a troubling anticompetitive reality. Google, Facebook, and their properties account for over 70 percent of all internet traffic (Cuthbertson). This market dominance is indicative of a massive concentration of revenue in few platforms. Relevant dynamics governing this anticompetitive atmosphere like the network effect, anticompetitive acquisitions, and the use of proprietary marketplaces must be checked by the FTC.
The United States needs a 21st-century outlook regarding what constitutes anticompetitive, unfair, and monopolistic practices. Thankfully, there exists a remedy to these issues: enforce antitrust legislation. This remedy has precedent thanks to the U.S. V. Microsoft case in 2001, which ruled that Microsoft imposed excessive barriers to entry with its anticompetitive practices and market dominance. The FTC needs to break up Facebook and Google, as their size is the root cause of their anticompetitive business practices. Their size affords them vast power, which translates into leverage used to stifle competition. They must be broken up into independent components. Below is a link to a graph showing how singularly dominant Google has been in recent years, consistently close to controlling 90 percent market share among search engines.
In 1880, Standard Oil controlled roughly 90 percent of oil production in the United States (Rockefeller and…). In 2001, Microsoft controlled roughly 90 percent of personal computer production in the United States (U.S. V. Microsoft). Today, Google controls roughly 90 percent of the global search engine market (Figure 1). Both Standard Oil and Microsoft were subjected to successful antitrust lawsuits by the federal government of the United States in the years following these figures. These phenomena are quite different in how they came about, but equally troubling. By creating a trust, Standard Oil’s executives were able to reach majority ownership in dozens of other companies which constituted essential components of Standard Oil’s supply chain (Rockefeller and…). This practice stifled competition and helped lead to the aforementioned 90 percent figure. Microsoft engaged in its own anticompetitive practices, which I will detail in a case study later.
Facebook accounts for roughly 60 percent of social media use when its property, Instagram, is included (Figure 2). Mark Zuckerberg argues that Facebook has plenty of competitors, like Microsoft, Apple, and Twitter. In a sense, he is right. The antitrust case against Facebook and Google is difficult if one depends on past antitrust precedent. Neither company is creating a trust to annex their supply chain. While Facebook and Twitter do ostensibly compete in the social media sphere while Google and Bing do so in the search engine sphere, this is not a true and full depiction of the situation. Facebook provides an entirely different service from Twitter. There is no serious alternative to Facebook for those who want a major social media platform with the same possibilities and components. The following analogy clarifies the positioning of Facebook, and Google to a lesser extent. The automobile industry certainly does not have any monopolies in the United States. However, if only one company sold sports cars at a mass level, while another company was the only one selling muscle cars, with another company was the only one selling motorcycles, that would not be a healthy marketplace. No single company would have a complete monopoly over the ‘automobile’ industry. However, the consolidation of certain sectors of the industry would constitute a bundle of effective monopolies not seriously competing with one another. This analogy, to a significant degree, faithfully represents the social media sphere.
Dynamics at Play
Three principal dynamics govern the maintenance of Google and Facebook’s respective market dominances: the network effect, anticompetitive acquisitions, and the use of proprietary marketplaces. The network effect refers to the notion that as the use of a service increases, so too does its value and dominance of the market (Khong et al). Facebook benefits from this more than almost any company because Facebook pioneered the social media sphere, and now benefits from its network of roughly 2.5 billion active users monthly (Facebook Reports…). To a lesser degree, this applies to Google’s features such as restaurant reviews integrated in Google Maps. Both Facebook and Google are guilty of engaging in anticompetitive acquisitions. Facebook’s acquisition of WhatsApp and Instagram vastly increase its dominance of the private communications and social media markets, where Facebook was already incredibly powerful. Facebook’s anticompetitive acquisitions have led to the fact that Facebook now owns four of the eight top communication apps, two of which it did not develop (Blumenthal). Google’s acquisitions of Waze and DoubleClick powerfully consolidated Google’s position among mapping applications and online advertising. The use of proprietary marketplaces to limit competition takes the form of Google tuning its algorithms to favor its own content and properties (Berlatsky). Below is a link to data showing just how dominant Facebook is in the social media sphere, especially when its properties, Instagram and WhatsApp, are considered as well.
Precedent: United States v. Microsoft
In 2001, the federal government of the United States sued Microsoft Corporation for anticompetitive business practices (Martinez). Microsoft made its expensively-developed applications an essential and exclusive component of its computers (Martinez). The Supreme Court of the United States ruled that this created an unreasonable barrier to entry for those attempting to create rival operating systems (U.S. V. Microsoft). This case is now considered a landmark case because prior to it, the technology sphere had been subject to minimal federal regulations. The Microsoft case was dominated by arguments about “viable alternatives,” “market share,” and “barriers to entry” for competitors. These arguments apply similarly to Facebook and Google. They both represent significant majorities in their respective markets, position their own content above rival content, and benefit from networks unimaginable to current start-ups. This case demonstrates that there is recent precedent for the notion that sufficiently anticompetitive industries are fair game for federal regulators.
Due to the aforementioned arguments, the FTC should break up Facebook and Google into independent companies constituting no more than 25 percent market dominance. Breaking up these companies is the best solution because the root cause of the harmful network effects, anticompetitive acquisitions, and unfair use of proprietary marketplaces is the sheer size of these companies. The leverage over consumers, rivals, and government regulators implicit in controlling over 50 percent of any market is dangerous to a free market.
The success of these two massive corporations must not be considered before fair market competition is ensured. The FTC must establish an antitrust tradition of the 21st century based on the Microsoft case. This will make clear the parameters for market competition, so that emerging industries of the future are not subject to the same levels of market dominance by few competitors. The FTC would benefit from ensuring that the core duties with which it is tasked are met, and the United States would benefit from a business atmosphere friendlier to innovators and newcomers. The social media and search engine sphere were pioneered by people Mark Zuckerberg, Larry Page, and Sergey Brin. Ironically, it is doubtful that these men could have changed the world the way they did if the big tech sphere had been as anticompetitive as it is now.
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