George L. Priest (guest article): “What to do about the Big Tech Monopolies?”

Dear readers,

I am delighted to announce that this month’s guest article is authored by George L. Priest, Edward J. Phelps Professor of Law and Economics at Yale Law School. Prof. Priest responds to several recent antitrust proposals targeting big tech companies, reminds us of the difference with non-tech monopolies, and comes back on the consumer welfare standard. I am confident that you will enjoy reading it as much as I did. George, thank you very much!

All the best, Thibault Schrepel

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What to do about the Big Tech Monopolies?

The four Big Tech monopolies in the U.S.—Google, Amazon, Facebook and Apple—have been subjected to extraordinary criticism in recent months, from Congressional committees and legislators, from the President who has appointed Big Tech critics to important policy and regulatory positions, from state antitrust officers and private parties filing antitrust suits, all of whom are concerned about the current size of these firms and their purported control of their industries; even more, about their growing control.

In this respect, the pandemic, with more consumers staying at home, appears to have enhanced the size of the existing monopolies. The New York Times has reported that the combined yearly revenues of Amazon, Google, Microsoft and Facebook increased by 25 percent over when the pandemic started.1https://www.nytimes.com/2021/04/30/business/europe-gdp.html Amazon has expanded its workforce by more than 470,000 since the end of 2019.2https://www.nytimes.com/2021/04/30/business/europe-gdp.html Senator Josh Hawley, a prominent critic of Big Tech, has recently argued, “we need a new era of trustbusting, an agenda to break up Big Tech and other concentrations of woke capital that threaten to turn the U.S. into a corporate oligarchy.”3https://www.wsj.com/articles/the-big-tech-oligarchy-calls-out-for-trustbusters-11619816008

As mentioned, Senator Hawley has proposed breaking up these firms, though he has not yet provided detail as to how to do so or what benefits to the society would result. He argues, “The Big Tech companies are the railroad monopolies, Standard Oil and the newspaper trust rolled into one, and tech CEOs are our robber barons.”4This is a uniquely uninformed statement. The railroad monopolies of the 19th Century were largely created and supported through land grants from the government. There was no newspaper trust. The Standard Oil example is discussed infra. Josh Hawley was a student in my Antitrust course and I recommended him for clerkships. As will be indicated, his current views do not represent the views of the course. Secondly, he has recommended, more broadly extending over the entire economy, prohibiting any corporation with more than $100 billion in capitalization from any merger or acquisition of another company.

Other efforts have focused on specific practices by Big Tech firms. The European Union has sued Apple with respect to its app payment plans,5https://www.wsj.com/articles/apple-faces-eu-antitrust-charges-over-app-store-payments-in-spotify-case-11619777595 and, even more recently, for its practices with respect to music streaming.6https://ec.europa.eu/commission/presscorner/detail/en/ip_21_2061 The State of Texas has filed an antitrust suit against Google claiming that it misused data obtained from consumers to its own benefit.7https://www.wsj.com/articles/states-sue-google-over-digital-ad-practices-11608146817 Texas has also sued Google over an agreement it has entered with Facebook giving favorable access to advertising. (Id.)

More generally the European Union has proposed amending its antitrust laws to lower the threshold for suits against platforms.8https://www.nytimes.com/live/2021/04/21/business/stock-market-today And Senator Amy Klobuchar, in a recent book, has proposed shifting the burden of proof in antitrust suits against Big Tech companies requiring them, not the government, to prove that a merger or acquisition would enhance competition.

These proposals and recommendations as well as the general suspicion of Big Tech companies because of their size fail to reflect that our current Big Tech companies are structurally different from monopolies such as Standard Oil or American Tobacco familiar in earlier antitrust cases. The Big Tech companies are not manufacturing monopolies, as were Standard Oil and American Tobacco, where costs of production increased with scale meaning that a break-up or a limitation on size would reduce costs. Instead, they are monopolies generated by the information age. Our current Big Tech companies are network monopolies where the benefit to all who join the network increases as the size of the network increases. All consumers who use Amazon benefit as Amazon increases the number of product sellers it makes available to those who use it and can do so as the number of users increase. Similarly, all consumers who use Google benefit as Google expands the range of information its search algorithms access.

These effects are different from, say, Standard Oil whose monopoly over oil refining was achieved by the acquisition of previously competing oil refiners. The Standard Oil monopoly allowed it both to compel its service providers—chiefly the railroads—to lower tariffs on transporting oil, and