Big Tech Con: Answers to Big Tech Undermines Competition

Turn — Big tech fights monopolies by making it affordable for new, small businesses to advertise

Tyler Cohen, June 13, 2019, Slate, Breaking Up Facebook Would Be a Big Mistake, https://slate.com/technology/2019/06/facebook-big-tech-antitrust-breakup-mistake.html, This essay is adapted from the recent book Big Business: A Love Letter to an American Anti-Hero, published by St. Martin’s Press.
Finally, the next time you are tempted to levy a charge of monopoly against Google or Facebook, keep in mind that both companies are significant anti-monopoly engines in their own right. They allow small and midsize businesses to engage in targeted advertising, and therefore to offer niche products that compete against the goods and services of larger companies. Before Facebook and Google, smaller companies had much more limited advertising prospects as they often found it too expensive to advertise on television or radio. Slate has relationships with various online retailers. If you buy something through our links, Slate may earn an affiliate commission. We update links when possible, but note that deals can expire and all prices are subject to change. All prices were up to date at the time of publication. Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.

Turn – regulations increase monopolization because only large companies can afford them

Peter Karmin, Stuart Loren, Managing Partner & Director, Karmin Capital, March 2018, Antitrust in the Internet Age, https://static1.squarespace.com/static/59c018a20abd045c70aaa964/t/5ab13e5b88251bfd94b30e65/1521565277206/Antitrust+in+the+Internet+Age.pdf
Short of a major regulatory threat or widespread user dissatisfaction, today’s dominant technology and internet firms are likely to remain entrenched in their leadership positions. As investors, we do anticipate that new regulatory compliance costs will eat into these companies’ profit margins over time (particularly for Facebook and Google, which will need to spend more on content oversight and data security). However, we doubt such costs will prove fatal to their monopoly power or long-term earnings power. Rather, if U.S. lawmakers or the E.U. impose costly regulations, it will likely further entrench these companies as market leaders. If smaller competitors lack the capital to build out a competitive service, they surely lack the capital to comply with new (and likely complex) regulations. In the meantime, though, any hint of harsher regulation will likely pressure the stock prices of these firms: indeed, as we are preparing to circulate this letter, Facebook is down over 7% on concerns over the regulatory fallout of its Cambridge Analytica debacle.

Innovation happens faster than regulation possibly can

Peter Karmin, Stuart Loren, Managing Partner & Director, Karmin Capital, March 2018, Antitrust in the Internet Age, https://static1.squarespace.com/static/59c018a20abd045c70aaa964/t/5ab13e5b88251bfd94b30e65/1521565277206/Antitrust+in+the+Internet+Age.pdf
To tie this all back to the concerns of Sir Tim Berners-Lee, businesses often moves faster than the regulatory environments under which they operate. At question is whether today’s dominant technology firms must adapt to existing social and legal norms or whether society and laws must adapt to new ways of doing business. Based on history, our money would be on the former outcome. For that reason, the long-term success of these firms, in part, depends on whether society’s response will be punitive or constructive. In this instance, we’d bet on the latter. The reality is that users largely enjoy these companies’ services and initially turned to them not for a lack of alternatives, but because they were so far superior to any alternatives. Antitrust law in the U.S. has never been about punishing success; rather, it exists to enable it. Accordingly, since antitrust law is not the appropriate avenue for regulatory action, Sir Tim is right that a new legal framework is likely necessary to regulate these companies. Short of requiring their dissolution – which we view as far-fetched – regulation will not be the death knell of these businesses. Better protecting user data will be a costly challenge; however, that pales in comparison to the difficulty of aggregating consumer demand in the first place. The future regulatory environment will be difficult to navigate for both technology firms and their investors. Rather than bemoan that fact, it is far more productive to prepare for it.

Big Tech supports innovation and competition in other industries

Karen Webster, 6-10, 19, The Only Thing Missing From The Big Tech Breakup Debate: A Debate, https://www.pymnts.com/news/regulation/2019/big-tech-breakup-debate/
And who’s responsible for that? Big Tech. Now That We’re Global In a digital world where smartphones now make every product more or less a local purchase for that consumer, Big Tech is helping companies large and small find new customers and build their businesses. They have been doing that increasingly over the last couple of decades. Take Google. Google says the number of “near me today/tonight” searches increased 900 percent in the period between 2015 and 2017, when there was also a 150 percent increase in “near me now” searches. “Near me” searches related to fashion and car dealers increased 600 percent and 200 percent, respectively. A majority were done via mobile devices, with 76 percent of those searches resulting in an in-store visit. Many of those visits were likely new customers. Take Instagram. Instagram today has one billion active monthly users – two-thirds of whom visit the platform every day. More than two million businesses have bought ads there, many of which are intended to drive users to their websites to buy products. Many of those ads and those sites are new or young businesses. Shoppable tags now make it easy for users to tap and buy from that tag, via an influencer or in an ad, and from a variety of sellers. Instagram says 130 million people do that every month. Then there’s Amazon. Amazon reports there are five million marketplace sellers on the eCommerce platform globally that represented 53 percent of paid units sold in 2018, up from 26 percent in 2007. During the 2018 holiday season, one billion items were sold by third-party sellers. In 2018, 75 percent of those active sellers had between zero and five employees – the very small businesses that would be impossible to find outside of a platform with scale and a built-in audience of eyeballs ready to search, shop and buy. And Apple. Apple’s App Store now has 1.8 million apps that consumers can search for, find and download. Additionally, $120 billion has been paid to developers since the App Store opened. Many small app developers became big app players on the Apple platform. Many of those apps help SMBs manage and grow their businesses. All of these platforms – Apple, Instagram, Google and Amazon – compete with each other for eyeballs and sellers, while creating an environment for those who would otherwise have no shot at finding buyers outside of their own local markets to grow and thrive. They also encourage many others to start businesses, since getting customers is easier than ever.

Turn — Breaking up the companies will raise advertising prices for emerging companies

Jason Allen, Writer & Business Coach, June 5, 2019, https://www.inc.com/jason-aten/the-federal-government-looks-ready-to-pick-a-fight-with-big-tech-heres-why-there-wont-be-any-winners-if-they-do.html, The Federal Government Looks Ready to Pick a Fight With Big Tech. Here’s Why There Won’t Be Any Winners if They Do
Millions of you run small businesses that depend on the platforms created by these companies. Whether it’s selling on Amazon, making apps that are sold to iPhone users, or advertising on Facebook and Google, there are collateral implications to breaking apart these companies.  Facebook isn’t a valuable advertising venue without access to your customers and the tools to effectively reach them. The services you use from Google– like business email, file storage, and analytics tools– aren’t going to be free when they’re broken into five different companies that lack the scale and reach of the world’s largest advertising platform.

Big tech invests in innovation

James Pethokoukis March 12, 2018, Another example of Big Tech not killing innovation, http://www.aei.org/publication/another-example-of-big-tech-not-killing-innovation/
There may indeed be “lots of examples” of Big Tech buying potential challengers to kill off future competitive threats. But is the Facebook purchase of Oculus one of them? Is it really the case that Facebook doesn’t care about VR technology? I’m not so sure about that. While the purchase has been a bit of a bumpy ride, Facebook boss Mark Zuckerberg has faithfully promoted the technology’s potential. He seems like a true believer in its future importance. Here are just a few recent headlines:
— “Facebook’s really big plans for virtual reality”
— How Facebook plans to get 1 billion people into virtual reality, according to the VP tasked with doing it
— Facebook hiring skyrockets with a focus on Oculus VR
It doesn’t appear to me that Facebook is trying to bury the technology. Indeed, it looks as if they are directing considerable resources toward it.
To be sure, the argument that Big Tech is hurting the economy’s innovative potential is a more compelling one than arguing these companies are hurting consumers today. Who knows what tomorrow may bring? But I sure found it interesting that Fast Company’s list of 2018’s most innovative companies includes not only tech titans like Apple and Amazon but also companies purchased by them such as Instagram and Waze. So what’s dead here, exactly?

Vague regulation means enforcement hurts the economy

an Young, Clyde Wayne Crews • April 17, 2019, The Case against Antitrust Law, https://cei.org/content/the-case-against-antitrust-law, Ryan Young is a Senior Fellow at the Competitive Enterprise Institute (CEI). His research focuses on regulatory reform, trade policy, antitrust regulation, and other issues. His writing has appeared in USA Today, The Wall Street Journal, Politico, The Hill, Investor’s Business Daily, Forbes, Fortune, and dozens of other publications. He is a frequent guest on radio programs, been interviewed by outlets including The Huffington Post and Voice of America, and been cited in media outlets including ABC News, CNN, and London’s City AM. He formerly hosted the CEI Podcast, and writes the popular “This Week in Ridiculous Regulations” series for CEI’s staff blog, Wayne Crews is vice president for policy and a senior fellow at the Competitive Enterprise Institute. His work explores the impact of government regulation of free enterprise. He studies antitrust and competition policy, safety and environmental issues, and the challenges of the information age like privacy, online security, broadband policy, and intellectual property.
Neo-Brandeisians and other progres- sives rightfully oppose rent-seeking, but their proposed antitrust policies would make the problem worse. Antitrust regulation creates opportunities for rent-seeking by politically connected interests. Wu consistently ignores this throughout his book. He correctly points out how numerous companies game government policies to reduce competition, but then goes on to advocate for more government power, which can also be gamed, as the solution. Even now, in a relatively restrained antitrust environment, roughly 95 percent of antitrust lawsuits are brought privately by competitors, not by the Justice Department or Federal Trade Commission.30 Repealing antitrust regulation would not eliminate rent-seeking—there are many other avenues rent-seekers can take—but it would reduce it. Such is the current state of the debate. The consumer welfare and Neo- Brandeisian populism standards are more similar than advocates of either side would like to admit, but there are more than two possible approaches to antitrust policy. The next section shows how a market-based approach to competition policy would yield better results than what pro-antitrust politicians on both the left and right are currently offering. Major Antitrust Themes and Arguments Antitrust enforcement policies have ebbed and flowed over the last 130 years, and will no doubt continue to do so, but the major themes and arguments persist. This section lists some of those major themes, and shows why market competition outperforms both Neo-Brandeisian activism and Chicago-style moderation. Competition is a spectrum, not an on/off switch. How much market concentration is too much? At what point does it become anti-competitive? Is it even possible to measure? If so, should it be measured by market share, how many firms are in the market, or how high are the barriers to entry? This is a significant knowledge problem scholars and regulators are still trying to overcome. The Herfindahl- Hirschman Index (HHI) attempts to provide an objective numerical score for market concentration.31 But even this device has its limitations—the people plugging the numbers into the HHI formula can define the relevant market any way they choose, and thus can come up with almost any HHI score they wish. They can even change the parameters if their first attempt’s results do not help the case they are trying to make. The Justice Department and Federal Trade Commission’s Horizontal Merger Guidelines state that mergers raising an HHI score by more than 200 points are “presumed to be likely to enhance market power.”32 Score changes under 100 are generally not a concern. While the scores do not decide a case by themselves, they do factor into agency decisions about whether to pursue a case and how strongly to place the burden of proof on the accused. That is an enormous amount of power for regulators to have. Moreover, a given level of market concentration is not on its own evidence of consumer harm, but businesses face enormous uncertainty in this area. The Sherman Act is very short, and makes monopoly or attempted monopoly the crime. Moreover, courts have never settled on a consistent definition of permissible concentration. Different decisions have used different bench- marks for what levels of concentration threaten competition, for no clear reason. The Supreme Court, in its 1962 Brown Shoe decision, ruled against a merged company with a combined market share of 2.3 percent of the nation’s shoe retail market and about 4.5 percent of its shoe production.33 Then in the 1966 Von’s Grocery case, the Supreme Court ruled against a merged company with a combined 7.5 percent market share in the city of Los Angeles.34 Meanwhile, the federal government gave AT&T a legally protected monopoly for decades until reversing course and breaking it up in the 1980s.35 Many regulators have a binary view of competition—a market is either competitive or it is not. Most markets are somewhere in between and constantly move around along that spectrum as circumstances change. This makes regulators’ task nearly impossible, given how difficult it can be for them to determine if a problem even exists, or how long it will last. The relevant market fallacy. This is one of the easiest mistakes to make in all of antitrust analysis. It is also one of the easiest to avoid. Thinking along the different parts of a spectrum illustrates why. At one end of the spectrum, every individual product can be seen as its own relevant market. A sandwich at one restaurant is different than an identical sandwich sold at another restaurant next door, even if they are the same price. One restaurant might offer better service, better ambience, or some other non- price characteristic that differentiates it from its competitor. In that sense, there are two different products operating in different markets appeal- ing to different sets of consumer preferences. At the other end of the spectrum, the only relevant market is as big as the entire global economy. That sandwich also competes against other types of food in a global supply chain. Whichever point on the spectrum an analyst decides is right for a given case is an arbitrary decision. It is largely a matter of semantics, and often analytically useless in determining consumer welfare. Uncertainty. Antitrust regulation creates an enormous amount of economic uncertainty. Nobody knows how it will be used at a given time. If antitrust statutes are interpreted literally, potentially any firm, no matter how small, can be charged with an antitrust violation—or for dominating its relevant market, however defined. If a business sells goods at a lower price than its competitors, it can be charged with predatory pricing. If it sells goods at the same price as its competitors, it can be charged with collusion. And if it sells goods at a higher price than its competitors, it can be charged with abusing market power. A century of case law has evolved some guidelines, but judicial precedents can be overturned any time a new case is brought. There are few bright-line legislative or judicial standards for antitrust enforcement. It is mostly guided by a mix of inconsistently enforced judicial precedents, regulators’ personal discretion, and political factors unrelated to market competition. Even the mere threat of antitrust enforcement can have a preemptive chilling effect on innovation, business strategies, and potential efficiency-enhancing arrangements.

Lots of venture capital investment in new industries

Karen Webster, 6-10, 19, The Only Thing Missing From The Big Tech Breakup Debate: A Debate, https://www.pymnts.com/news/regulation/2019/big-tech-breakup-debate/
Follow the VC Money VCs may not be putting money into building the next Big Tech behemoth, but they are investing in lots of adjacent businesses that compete with them in different ways. Take the many vertical search platforms, now operating at scale themselves, that aggregate buyers and sellers – many of them small – to help them find each other. 1stdibs gives several thousand sellers, mostly small antique dealers, a way to reach eyeballs from around the world – and for those eyeballs to find unique items they’d otherwise never find easily. And it enables dealers to reach buyers who spend a lot: The average transaction value on 1stdibs is $3,000. Chairish does, too, with a mix of sellers ranging from people selling high-quality vintage stuff to dealers who want to expand their storefronts to anyone with a mobile phone. In doing that, both 1stdibs and Chairish have unlocked opportunities for interior designers, who can now source and curate from these online showrooms and boost their own businesses. According to 1stdibs, 40,000 interior designers have registered on their site. Houzz, one of the first sites to offer shoppable tags, does the same thing for home renovations and remodeling. An aggregator of both ideas and the items to complete and furnish the project, Houzz also gives local professionals an opportunity to be found when homeowners are on the site contemplating a potential project. There’s also plenty of money being poured into food aggregators like Delivery.com, Grubhub, Uber Eats and DoorDash, which gives restaurants a chance to be found beyond the more traditional channels like Yelp and Google. Oodles of money have also been poured into subscription businesses, many of which package items from a variety of businesses to bring a unique experience to the consumer and offer distribution for small sellers. Barkbox, the monthly subscription service that started as a small business, packages and mails goodies to delight precious fur babies. In those boxes are products from small businesses that make the best organic dog treats, or the most puppy-friendly squeaky toys. Shots Box does something similar for craft beer, offering samples of craft beers via a subscription service in an effort to create the largest online tasting room and drive distribution of the local distillers’ products. VCs have made investments in innovators – once small businesses themselves – to help other small businesses be more successful. New tools and tech help digital businesses accept all forms of electronic payments, including the digital wallets that make it easier for consumers to buy from them online. They also enable the businesses to connect to marketplaces and contextual platforms, do business on a global scale, fight fraud, find outsourced help on gig platforms, and integrate front and back office operations into their accounting systems. Big Tech has given rise to an entirely new set of innovators who are reaching new audiences because Big Tech is — well — Big, and gives them access. Billions have been invested to help businesses form, grow and even leverage opportunities provided by Big Tech platforms to do business — in a safe and secure manner. If anything, Big Tech has spawned innovation and a whole new set of competitive dynamics in the markets in which they operate and compete – and helped to grow and fund new players who compete in different ways.

US leads in innovation now

Consulting.us, May 25, 2018, https://www.consulting.us/news/68/us-edges-china-as-global-hotspot-for-disruptive-innovation
Global tech leaders believe disruptive innovation is most likely to come from the US, a new study has found, but China is catching up quick on its rival technology superpower.   C-Suite leaders in the technology industry still consider the US the most likely market for disruptive innovation to emerge. China ranks a close second with a quarter of industry leaders believing the world’s second largest economy has the most potential to unleash radical change on the tech sector.