Sponsored briefing: The antitrust challenge to Big Tech

Eric Posner discusses the US antitrust law challenges for Big Tech companies

After a long period of stagnation, United States antitrust law has experienced a jolt of adrenaline, thanks in large part to public anxiety about the enormous economic and cultural power of Big Tech. Apple, Microsoft, Amazon, Alphabet (which owns Google), and Facebook are the five largest companies in the US by market capitalisation. All of these firms are ubiquitous presences in people’s lives. And all of them (except Microsoft, which has tended its operating system monopoly but not tried to extend it) have been subject to a torrent of criticism about their allegedly anticompetitive practices, now the subject of a spate of lawsuits by the US government, the state governments, and private parties.

The US Department of Justice sued Google last October. The government argues that Google has monopolised the market in search and search advertising by paying or compelling various firms to incorporate Google’s search engine into their systems as the default. This lawsuit was followed by similar cases brought by various US states.

The Federal Trade Commission and a group of states sued Facebook in December for monopolising ‘personal social networking services’. The suits allege that Facebook illegally purchased competitors – notably Instagram and WhatsApp – and prevented developers who access Facebook’s platform from marketing products that could compete with Facebook’s.

Numerous private lawsuits have piggybacked on the government cases against Google and Facebook, but with respect to Apple and Amazon, private lawyers have led the way. In Apple v Pepper, the plaintiffs – a class of consumers – argue that Apple’s app store is an illegal monopoly. In 2019, the Supreme Court rejected a challenge to this lawsuit, which is now in discovery. In Frame-Wilson v Amazon, the plaintiffs argue that Amazon has fixed prices by requiring third-party sellers on the Amazon Marketplace to charge prices no higher than prices they charge through other distribution channels. These cases and many others – against these firms, as well as Google, Facebook, and other tech firms like Uber – share a common theme: that the tech firms harm consumers, developers, advertisers, and others by using contractual and technological restrictions to protect their platforms and to extend their monopolies into new markets.

Litigation against Big Tech poses questions about the capacity of US antitrust law to address the ills of market power in the tech industry. While all the cases are different, and their resolution will turn on different facts, they share certain challenges.

Nearly all the cases involve an allegation that the tech company defendant possesses significant market power – a monopoly or close to it. Such an allegation is necessary for most types of antitrust cases. Yet, in part because of their novelty, many of the markets in question are hard to define. Is the market for ‘personal social network services’ dominated by Facebook, as the government claims? Or does Facebook compete with TikTok, Snapchat, Twitter, LinkedIn, and YouTube? The online advertising market is enormously complex, as it features different kinds of ads (search, social media, display, etc.) that target different types of customers at different stages in their purchase decisions. Google dominates the market for ads that accompany search results, but can this market be separated from the ‘social media ad market’ where users see ads from the same firms in their feeds? Amazon plays a huge role in ecommerce, but is its pricing power constrained by brick and mortar stores where people can try on clothes and haggle with sales clerks?

Even where a market is easily defined and dominance clearly established, the tech companies will argue that monopoly is a natural (and therefore legal) consequence of internet-related technology. Most tech platforms involve, in one way or another, communication, and as people have understood at least since the invention of the telephone, a network is more valuable to its users, the more users join it. This can mean that a market will have room for only one network, or one dominant network. The tech companies will argue that they owe their monopolies not to the anticompetitive behaviour they are accused of, but to the nature of the markets in which they operate.

Plaintiffs must contend with a complication generated by another aspect of these markets – their two-sided structure. A two-sided market is one in which a company (via a platform) connects different groups of people and takes a cut in the form of commission or through advertising. Virtually all tech companies operate platforms. Amazon connects buyers of goods and third-party sellers on its Marketplace. Google and Facebook connect users and advertisers. Apple connects developers and users on its app store. In Ohio v American Express, the Supreme Court declared that plaintiffs who sue platforms based on their behaviour on one side of the market must also show that that behaviour is not constrained by market discipline on the other side. As a result, plaintiffs who sue tech companies must (unlike in most traditional antitrust cases) prove the anticompetitive effects of behaviour by taking account of multiple markets rather than just one.

Aggressive antitrust challenges to Big Tech also face skepticism from a view, shared by many conservatives and business leaders, that markets correct themselves. The enormous profits of the largest tech companies put them squarely in the crosshairs of ambitious entrepreneurs – and each other. Many tech markets are better characterised as duopolies or oligopolies than monopolies – including, for example, for certain types of advertising, cloud computing, and e-commerce. Despite the vaunted power of network effects, established platforms including Grubhub, Netflix, and Uber, have lost market share to rivals.

While it seems likely that the government and private plaintiffs will score some real successes against Big Tech even under the crabbed version of antitrust law that currently prevails, there is only so much that antitrust law can do. Many people worry about the political and cultural power of the tech firms, including their role in the dissemination of lies and conspiracies and their failure to protect data privacy. The massive transformation of the economy and human relationships through technological innovation over the last twenty years will require legal innovation that matches it.