More than a century ago, US antitrust regulators ordered the break-up of Standard Oil. The company had grown into an industrial empire that produced more than 90 per cent of America’s refined oil output. Today, the US authorities have Big Tech in their sights. According to their critics, America’s large technology companies wield similar levels of power to that of Standard Oil 100 years ago. Their market power is not in oil but in data, the lifeblood of the modern economy. This week, the Federal Trade Commission and a group of 48 US attorneys-general hit Facebook with its first antitrust charges on home soil. If regulators can prove that the social media network deliberately acted in an anti-competitive way, it could lead to the company’s break-up.
The central allegation is that Facebook chose to buy WhatsApp and Instagram in order to neutralise their threat, and to entrench its own position as the dominant social networking platform. The result, the regulators claim, was that consumers were denied the benefits of competition. There are significant hurdles for the case to clear, not least the fact that the FTC approved both of the acquisitions, that of Instagram in 2012 and WhatsApp in 2014. The courts will have to consider whether the acquisitions were lawful then, not whether they would be lawful today. Regulators will also have to prove that rejecting Facebook’s acquisitions would have led to increased competition and to an improvement in choice for consumers. The enforced unwinding of past deals carries other risks, notably the potential to undermine trust in policymakers for business in general.
There are good reasons for regulators to set limits on the power of technology platforms such as Facebook and Google, whose influence is only set to grow stronger as digital behaviour takes over more aspects of work and life. Together, Google, Facebook and Amazon last year accounted for more than 70 per cent of online advertising globally. There are legitimate concerns that dominant companies stifle innovation and can use their power to buy up potential young competitors. Much of the recent concern over Big Tech has focused on how these platforms use the personal data of millions of users to entrench themselves.
The drive to curb Big Tech’s power has gained momentum this year. Competition authorities in Europe and in the UK are ahead of the US in drawing up broad new rules over how the platforms operate. The European Commission will next week unveil sweeping new powers that will define “very large platforms” as those with more than 45m users. The proposals are designed to force Facebook and others to take greater responsibility for policing the content on their sites and to share data with authorities on how they moderate illegal content.
Such regulatory moves will be needed to curtail the power of the platforms long-term. Aggressive antitrust enforcement is an important part of this, even if it does not guarantee success and can take years to play out. The very threat of enforcement can be a deterrent on future deals.
One of the challenges for regulators is the nature of the digital economy: services are often free so consumers do not face rising prices. Consumers also appreciate and often heavily rely on the products Big Tech companies provide. The platforms, meanwhile, argue that they are being punished for entrepreneurial success and innovation. A new regulatory approach towards the industry must aim to prevent monopolistic practices and promote the creation and growth of the next generation of competitors.
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