In the twenty-second and final edition of the Decision 2020 Report, Hoover fellows analyze the policy implications of government regulation and antitrust litigation against big technology firms.
Too Big to Bust
In a December 2018 article for Prospect, Niall Ferguson writes that court rulings and the current political environment make Google, Facebook, and other titans of Silicon Valley too difficult to prosecute under US antitrust statutes.
Ferguson explained the evolution of antitrust law in the twentieth century beginning with the US government’s case against John D. Rockefeller’s Standard Oil Company. At first the company was praised for reducing the price of kerosene. However, public perception turned against Rockefeller as a result of negative media coverage. In 1911 the Supreme Court ruled that Standard Oil had to be separated into 34 different firms.
“Supreme Court Justice Louis Brandeis coined the phrase ‘the curse of bigness,’ arguing that firms could be too big to treat employees on equal terms, to be efficient, and to treat rivals fairly,” Ferguson said.
Antitrust drastically changed by mid-century, when Robert Bork and Ward Bowman of Yale Law School challenged the broad and aggressive application of such law on the grounds that it actually harmed consumers, because many of these large firms were economically efficient and offered affordable prices.
Ferguson contended that the reason why Bork and Bowman’s view has prevailed in the twenty-first century is because it is difficult to argue that network platforms cause harm when they offer services free or at low costs.
He explained that past attempts to prosecute antitrust laws had little impact on defendants like Standard Oil and, much later, Microsoft and further exposed the market’s dependency on the goods and services provided by those firms.
“Don’t hold your breath for the break-up of Amazon, Google or Facebook. Paradoxically, the trust-busting revival might even turn out to be good for the tech giants and their shareholders. For ‘too big to fail’ read ‘too big to bust,’” Ferguson concluded.
In a recent episode of Hoover’s Goodfellows, Ferguson talks with senior fellows John Cochrane and H. R. McMaster on the case against Google and allegations of political censorship by big technology companies.
Little Evidence that the Government’s Case against Standard Oil Benefited Consumers
In a recent op-ed for the Daily Caller, Senior Fellow Tom Gilligan wrote that the case against Standard Oil did not provide remedy for consumers in the form of reduced prices or higher-quality products.
Prior to litigation, Gilligan maintained, “Standard Oil’s dominant position was obtained through relentless innovation that resulted in tremendous efficiencies and the creation of new markets that benefitted a multitude of consumers.”
He argued that there are similar risks in the government’s current case against Google, which offers superior products at no or little apparent cost to the end user. The Silicon Valley giant processes approximately 90 percent of all global search inquiries, its Chrome application has a more than 70 percent share of the browser market, and its Android operating system is used on 85 percent of all smartphones.
Gilligan explained that the government’s case alleges that Google achieved market dominance by thwarting competitors and paying mobile phone makers, wireless carriers, and browsers to make Google the default search engine.
“Google will lose and have to change some of its behaviors and spin off some of the ancillary properties it has acquired or developed to support its digital advertising commerce,” Gilligan predicted. “The antitrust treatment of innovative and dominant firms will continue to be ambiguous and only discernable after the fact. Such is the price of success.”
Questionable Application of Antitrust Statutes
Peter and Kirsten Bedford Senior Fellow Richard Epstein questioned a recent investigative report issued by the Democratic majority in the House of Representatives about the strict application of antitrust laws against four major technology companies: Amazon, Apple, Facebook, and Google.
Epstein maintained that the report’s proposals, if passed, would only result in more negative results in the digital marketplace. He argued that suggested restrictions on larger companies’ ability to acquire smaller ones would only reduce market incentives, as startup firms would be prevented from achieving potentially high rewards for their innovations.
Epstein also maintained that while the misappropriation of third parties’ user data is wrong, antitrust lawsuits aren’t the proper remedy for data privacy concerns. He also contended that small firms are just as capable of breaching consumers’ privacy and engaging in other activities that pose harms to them.
Epstein concluded by arguing that the bigger issue with big tech is not their “economic aggrandizement” but rather their alleged censorship of political speech, especially in the current US presidential election cycle.
“This creates serious political risks, a situation for which antitrust law does not offer any ideal solution,” Epstein wrote.
Regulation of Big Tech Will Do More Harm Than Good
In an April 2019 op-ed for Project Syndicate, Wohlford Family Senior Fellow Michael Boskin wrote that there are four main issues about tech firms’ business practices that need to be addressed: privacy, market dominance, free speech, and censorship.
However, Boskin warned that recently proposed regulations may prove excessive. As an example, he said that the European Union’s recent law requiring tech companies to be compliant with data privacy measures will incur disproportionally higher costs on smaller firms and end up supporting the market dominance of big tech.
Boskin cautioned against the proposal by Senator Elizabeth Warren (D-MA) to prohibit tech firms from developing both operating platforms and applications on which they run, objecting that consumers benefit from the use of well-integrated software. He advised policy makers to cease calling for transformation of tech platforms into regulated utilities, because the enforcing government agencies could become vulnerable to regulatory “capture”—that is when an agency chartered with protecting the public instead works to serve the industry it is intended to regulate.
The Hoover economist concluded that firms and governments need to achieve a better mutual understanding in assessing the national security risks that arise from the use of technology. Boskin cited Apple’s dispute with the FBI about enabling investigators to retrieve data from an iPhone of a suspect in the December 2016 mass shooting in San Bernardino, California. Apple CEO Tim Cook raised concerns that a back door built into the iPhone would allow for the device to be more easily hacked.
“Yet tech firms must understand that actions that hurt profits may be necessary to protect lives in exceptional circumstances, provided the measures are narrowly prescribed and court-supervised,” Boskin said.
