Deep Dive Episode 123 – Antitrust Investigations into Big Tech Companies
American tech companies like Google, Apple, Facebook, and Amazon are some of the most successful companies in the world. Recently, these companies have faced various criticisms, with some questioning if they are violating the antitrust laws. Antitrust investigations are ongoing by the DoJ, FTC, and the attorneys general of many states. On Wednesday, July 29, a Congressional hearing was held with the companies’ CEOs on the question of online platforms and market power.
This live podcast explores what these investigations tell us about innovation and antitrust, as well as the current concerns regarding these firms’ market power and conduct. Can current antitrust law and competition policy address this dynamic market? How might antitrust enforcement impact innovation? What do these investigations and calls to break up big tech companies tell us about the future of antitrust enforcement and competition policy?
Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.
Colton Graub: Good afternoon and welcome to The Federalist Society’s Fourth Branch podcast for the Regulatory Transparency Project. My name is Colton Graub. I’m the Deputy Director of RTP.
As always, please note that all expressions of opinion are those of the guest speakers on today’s call.
If you’d like to learn more about each of our speakers and their work, you can visit regproject.org where we have their full bios. After opening remarks and discussion between our panelists, we will go to audience Q&A, so please be thinking of the questions you’d like to ask our speakers.
This afternoon we’re pleased to host a conversation exploring the antitrust investigations currently faced by a number of American tech companies. These investigations are ongoing by the DOJ, FTC, and the attorneys general of many states. Last Wednesday, a congressional hearing was held with the CEOs of Amazon, Google, Facebook, and Apple on the question of online platforms and market power. This teleforum will explore what these investigations tell us about innovation and antitrust, as well as the current concerns regarding these firm’s market power and conduct.
To discuss this topic we’re pleased to feature Jennifer Huddleston, who is the Director of Technology and Innovation Policy at the American Action Forum. We’re also please to feature Hal Singer, who is the Managing Director at Econ One Research, and Tom Hazlett, who is a professor of economics at Clemson’s College of Business. I’ll now hand it off to Jennifer to kick things off and dive into this topic. Jennifer.
Jennifer Huddleston: Thank you. It’s exciting to be here today to talk about what is certainly an exciting and timely topic. Technology remains an incredibly dynamic field. If we were having this conversation a little more than a decade or so ago, we would have been talking about questions of “Is Myspace a natural monopoly?” and whether or not Yahoo had won the search war.
What we’ve seen though is that the consumer welfare standard remains an objective an adaptable way of examining antitrust issues, even for dynamic fields like technology. When considering competition policy issues or antitrust concerns, policymakers should stick to a principled approach and make sure that they are properly analyzing the actual issues at hand, rather than using antitrust and competition policy for other policy concerns. This means examining whether or not there’s evidence of market power and that market power being abused, as well as identifying the proper market definition and possible consumer harm.
When it comes to technology, these are still very much questions about whether or not there is evidence that large tech players could be considered to have any, if not all, of those concerns — if large tech players could be considered to have any of those concerns. Instead, though, what we have seen in some cases is policymakers trying to use antitrust policy to address other policy concerns related to technology that might not be resolved by such actions at all. This includes concerns related to online content and speech, as well as concerns such as privacy.
And in fact, a breakup from antitrust could even make some of these problems worse as smaller players might not have the necessary resources to approach these concerns or may engage in different practices than the current players that make some of those concerns even worse. When considering potential changes to antitrust policy, if any at all, we have to really examine them in light of these principles of having an objective consumer — of having an objective standard that considers whether or not consumers are currently being harmed. Any changes shouldn’t just be examined with how they might impact current tech players but what they might mean for the future of this incredibly dynamic field, as well as how it might impact other industries.
Antitrust is not just about technology, but these conversations exist in a broader context. And any changes to the policy approach concerning competition policy will likely impact other industries as well. For this reason, it’s incredibly important when examining the current situation with regards to big tech that we continue to draw on existing antitrust principles and that we approach this not out of our concern about a potential tech-lash but by properly examining the competitive marketplace.
Colton Graub: Awesome. Thank you, Jennifer. Hal?
Hal Singer: All right. Well, thanks for having me on. I’ll just respond to what Jennifer says. How about that? I think that the consumer welfare standard is a very reasonable starting point, but I fear that it might be missing out on certain types of harms that we as a society could care about, including anticompetitive harms. And the problem really here is that when you start to focus and drill down on very particular types of strategies, exclusionary conduct that the platforms are engaged in, we notice that they generate harms that could escape scrutiny under a narrow consumer welfare lens.
So just to use one of my favorites as an example, we heard a lot of talk about self-preferencing that the judiciary committee’s hearing last week. And self-preferencing, as the name suggests, is when a platform favors its own content over that of an independent rival in search. All the platforms do this effectively. And the question is where is the harm, and would it be detected under the consumer welfare standard as understood by modern antitrust courts?
And I would submit that when Google, for example, steers a search to its own property, you’re not going to get a short run price effect. You’re also not going to get a short run output effect. At most, you’re going to get a short run quality effect. There’s a few papers on this point suggesting that Google is willing to sacrifice quality in order to capture the extra clicks. But I would tell you, based on my experience in antitrust courts and speaking with antitrust law professors, that you could not bring a quality harm to a court and have that serve as the only basis of antitrust injury.
We like to refer to quality harms and also innovation harms as and/also harms. In other words, they’re recognized by antitrust, but you would be hard pressed to find a case in which either a quality harm or an innovation harm constituted the sole basis for an antitrust intervention. Because I mentioned the word innovation harm, let me just kind of spell out what I mean here.
We heard during the hearings about how Amazon squeezes independent merchants in their dealings. For example, we heard that—and, of course, those following closely knew this already—that Amazon will basically disappear you from the buy box if you don’t buy Amazon’s fulfillment service. Or Amazon won’t stop the flood of counterfeits unless you buy Amazon’s ad services. We know from a report that came out, I think, a week before by Institute for Self-Reliance that Amazon has been able to raise the fees on its merchants from 19 to 30 percent over the recent few past years.
The concern that I have is that, if we’re going to rely exclusively on the narrow consumer welfare lens, we’re going to miss these harms to input providers. And the harm will not manifest itself in terms of a short run price or output effect. But instead, the harm that economists would be concerned about is that if these independents feel the playing field is becoming so unlevel that they might just throw in the towel and will see future loss in terms of innovation and a reduction in consumer choice, that’s the harm. And I fear that if we lock ourselves into the consumer welfare standard, we’re going to miss out on these.
Now, just in closing, I would suggest that there’s — we don’t have to change the antitrust standard to go after these problems if we care about them. Antitrust’s just one tool in the antimonopoly toolkit. And if we care as a society about fostering a climate in which these independent mom and pop shops, say, merchants on the Amazon platform can survive and thrive in the future and induce future entry and entrepreneurship and innovation, we can create protections outside of antitrust and leave the consumer welfare standard alone. So I’ll just conclude with the idea that I think there’s a problem. We should do something about it, and it doesn’t necessarily have to go through the antitrust funnel.
Colton Graub: All right. Thank you, Hal. Tom?
Thomas Hazlett: Yeah. Thanks, also, to the host and to my fellow panelists. And, you know, it’s a great topic. It’s front page news, and it’s not at all surprising that with the gales of creative destruction we’ve seen in the market—disruption of entire industries and sectors of the economy—that we would have backlash, that we would have some reaction to this on political terms, even as consumers, who are also workers, are benefiting tremendously from gains in the economy due to technology innovations and, of course, as well, small innovative entrepreneurs — large and small, I should say.
At the same time, many of these entrepreneurs are feasting on existing businesses, large and small. And, of course, the small ones become the poster children. That is the approach directly used by the attorney and advocate, later Supreme Court justice, Louis Brandeis, who is, in fact, the intellectual light that is put forward in terms of talking about the harms of the current regime.
Now, the current regime, of course, dates at least to 1890 in history. We had some common law rules before that. But that was the statute in the United States that we generally cite as the beginning of antitrust law. And it’s important to note that, while many like to romanticize that innovation in the policy space, it really — it’s very difficult to see any policy improvements or even changes that were touted, certainly, by consumer advocates and even critics of big business like Ida Tarbell, who wrote a very good book about the fact — The Tariff in Our Times. It says quite explicitly that the Sherman Antitrust Act was simply a pretext for raising tariffs and, in fact, benefiting big business with those heightened tariffs.
The tariffs that were raised later in 1890, the McKinley Tariff Act, were the highest in U.S. history at that point, were extremely protective. And anyway, so this was — there were no real breakups under that act until 1911, Standard Oil. Standard Oil has not impressed economists as promoting consumer welfare. The data is just not there for that.
And we have to be very careful on all these propose inventions, particularly when we’re hailing our history saying that we’ve gotten away from these roots of antitrust, to make sure we get that history right and that we compare any new regime to some alternative, not some hypothetical version that there’s going to be reduced vertical integration, you get more innovation, heightened antitrust but no errors on antitrust that spring from, in fact, penalizing firms and reducing the spread of firms that have been very innovative. And we certainly see in the 1890s, as well as today, that new economies of scale are extremely productive and disruptive for less efficient ways of doing business. And that tends to really reset the political arguments, the political interests against each other.
And we want to welcome — I think everybody agrees we want to welcome innovations that help society and make us more productive. And, in fact, we do have antitrust rules, like I said, even predating 1890 that would tend to disallow anticompetitive actions that, in fact, have no demonstrable or plausible case for efficiency. And that’s generally been the regime with respect to horizontal price fixing and less controversy over that.
I just want to note that vertical integration is something that comes up as thought this is a problem. But the history of vertical integration now is just so overwhelmingly productive. When we talk about the Revolution in over the top video and in some popular versions, starting with Netflix and now going to many, many competitors over the top—we’re certainly quarantined and watching a lot of this — binge watching a lot of this television product—that it’s really dethroned cable.
That was thought to be the monopoly. This comes in. This was mentioned by Zuckerberg, actually, the other day, including the world of free texting and messaging and all of that to replace the very costly mobile phone texts. But Apple, in terms of putting together vertical integration, between iPod and iTunes, almost a generation ago and then coming in with iPhone and the App Store and in the process destroying Nokia Siemens ecosystem and the erstwhile innovator, Blackberry—R.E.M. Blackberry—but bringing in Google Android as a new competitive platform. And, of course, the world of apps, which were, you know, the mid-2000s, techies in Silicon Valley used to mock the phone business — wireless, saying that the only apps available were ringtones. And that’s not the complaint any longer because we have a million apps. In fact, we have more than a million apps to choose from on each of the major app stores.
And so the rents and all the action and innovation that people are buzzing with—and it’s not all, but this is the zeitgeist—all this excitement has shifted from what was — and some still mockingly call it the oligopolists — the carriers to entrants into the wireless business that have really dethroned the old ways of doing business in a very productive way. So we see tremendous progress on this. The old monopolies, including AOL, Time Warner 20 years ago — biggest merger in American history, then and now, in fact, would prove to be a chimera in terms of its monopolistic ability, tendency, or effect.
And we should take all of these lessons into account when talking about changing the regime and pushing for something that’ll be less vibrant and less disruptive in favor of more regulated order. As Hal says, maybe not just through antitrust but through other forms of regulation, including public utility and economic commission-type regulation, which has also been advanced, to some kind of a solution. I hope we can talk about some of the weaknesses of that approach as well. Thank you.
Colton Graub: All right. I’m happy to open it up to Jennifer or Hal if you’d like to respond.
Jennifer Huddleston: I want to pick up on something Hal mentioned earlier about innovation harms, and we do continue to see a lot of innovation and a lot of competition in this space, including from the large players — large players that are constantly having to reinvest in research and development, which is not behavior you would typically see from a monopolist. And we’re also seeing that the action of these large players can spur innovative behavior on the part of more traditional firms. I think we’ve certainly seen this in the retail space but also in terms of other online options, such as messaging services and whatnot.
Another thing to point out is that innovation can be very hard to predict, and it can be very hard to predict those seismic changes that may occur. So one example that I think has become very real for a lot of us recently is the incredibly rapid growth and emergence of video conferencing, of things like Zoom that have suddenly become incredibly popular that a couple of months ago most of us had never heard of, let alone used. And now it’s really become a household name.
And that’s an area where we’re not necessarily seeing these big tech companies as the main players. So I think when we consider this market, we really have to consider how dynamic and innovative it truly is. And then, additionally, when we’re looking at these smaller players, at the startups, that we do still have a very large startup culture. And we never know where that kind of next Facebook, next Google, next whoever may come from. But at the same time, there are other options for startups to pursue. And in some cases, that may be a preferable end goal and have benefits for consumers as well.
Hal Singer: Yeah. I was going to respond first to Tom if that’s okay. And then maybe I’ll come back, Jennifer, and get what you just raised. On the Tom point, Tom talks about vertical integration and ban on vertical integrations. And that certainly is one of the remedies that are being thrown about. But another remedy—and I think it’s less invasive—that I like to pitch is something that we tried—I know Tom knows this well—in the cable space.
But in 1992, we decided that we were not going to allow a vertically integrated platform to pick off different edge ideas by basically cloning the app—does this sound familiar?—and making one of their own and then disappearing the independent cable network. So in 1992, in the Cable Act we passed in Section 616 a nondiscrimination regime. And that nondiscrimination regime effectively allows cable operators to do what they want. But if they get caught discriminating on the basis of affiliation, then they can be exposed to liability. And these cases have been adjudicated on a case by case basis in front of administrative law judge at the FCC.
And I would submit that an intervention of that form could be successful. And I’d also submit that it has — there’s no evidence that cable operators, in response to the nondiscrimination provisions — I know Tom has a book about how cable operators reacted to price controls in various forms of cable regulation over the years. But I don’t think there’s any evidence to suggest that subjecting the vertically integrated platform monopolists of an earlier era had any effect on cable’s incentives to invest either in the core of its network or in the periphery in network services. You see Comcast, for example, investing heavily in content to this very day, despite the presence of these nondiscrimination protections. And yet, we saw a proliferation of independent networks over the ‘90s and the ‘00s.
And I would submit in part because of the knowledge that if you came up and you made it and you managed to get yourself on the dial, you weren’t going to be cloned and then disappeared. So I’d like to maybe hear how Tom reacts to that remedy. I’m sure he’s not going to love it. But I’m worried that if we treat vertical bans as being the only remedy out there, we might miss some of the more obvious solutions.
Thomas Hazlett: Yeah. Well, thanks for that and I wanted to go back, if I could, on what you said about our antitrust law as currently configured does not allow for cases against the innovation suppression. That’s just wrong.
Hal Singer: Tell me the case. Tell me the case.
Thomas Hazlett: U.S. v. Microsoft.
Hal Singer: Right. And what did we do to Microsoft, Tom? So the Court said —
Thomas Hazlett: That’s my argument, Hal.
Hal Singer: Sorry. Go ahead. Go ahead.
Jennifer Huddleston: Well, and if I could —
Thomas Hazlett: No, I was just saying that’s my argument. What did we do to them? The claim was that Microsoft has suppressed innovation in operation systems preemptively, far before Java, which was the specific entrant identified by the government, was ready to be an operating system. But it was embedded in Netscape Navigator, the browser. And Microsoft competed very robustly, shall we say, against Netscape.
And to stop Microsoft from protecting apps that it liked and discriminating against apps it didn’t and stop the future innovation, they went after Microsoft. And that case did not improve consumer welfare. It did not improve innovation. You did not get operating systems on the Wintel machines in the ten years that those remedies that were imposed were there. You got them — you got entry from Google Search before that case, and you got Chrome and Mozilla and other — and Apple, of course — Safari coming into the market and mobile space in a very powerful way without regard to any of the remedies there. So that was where it goes the other way.
Now, on vertical integration and cable, there are possibilities for vertical foreclosure. And that is reflected in current law, antitrust law and some other. And it’s interesting you bring up the ’92 act. I actually had a small part in dealing with Congress on that. And some of my work was used in the rules to get away from exclusivity agreements that protected local cable monopolies.
It was actually quite the other way that we were trying to get entry. We didn’t have phone companies — and the big thing that allowed competition in that market was phone company entry that was legalized later. That was a regulatory prohibition. But there were also some anticompetitive actions against so-called overbuilders, competitive cable companies.
And so the ’92 Cable Act did put in some sort of — you know, the poor man’s version of an antitrust rule. And I — it was good. It was fine. It really didn’t do very much because it exempted most all the action in the market. You had to have a satellite distribution, and you had to have — it was only related to the companies that owned various programming. And the cable operators didn’t own that much programming at the time.
But I got no problem with that. But if there’s simply no rule against cloning content on a network and offering a new network with that same content — and, of course, that happens if you look at CNBC or FOX Business. And you get networks that try to mimic each other. And they have entry, and some of them have vertical links to ownership.
And in fact, the research that’s done on that you can even see it in the market where you get companies like Time Warner Cable in 2009 owning the second largest cable structure in the country to deliver programming. And they also own Time Warner — the company with the programming. They voluntarily divested, and they spun the cable distribution grid off to new owners. They didn’t sell it to another integrated company. They just got rid of all that so-called monopoly power. It’s just not a factor in the market.
And now, with all the entry that’s come into that market, you just see it in huge waves of creative destruction. You see the Netflix and the Amazon Primes and Hulus. All that — and HBO Max and Disney+. You get — you know, it’s the dance of the elephants. You get all kinds of small upstarts and then — Netflix, itself, is of course a small upstart that tried to be eliminated by Blockbuster. And they did have a price war. They did have a predatory battle. And it was Blockbuster, the big incumbent, that died in 2010.
And so you get these marvelous forms of competition out of this maelstrom. And thinking that you can solve it with something like the ’92 Cable Act, which as I said I’m happy to say I had a hand in some of the rules that were a step forward. But they did much less than has been supposed. And in cases like the Microsoft case where you did get to a claim of blocking innovation, even proponents — and especially proponents of that case thought it came out very badly. The remedies were poor, and there really was no effect from that case on the market.
Jennifer Huddleston: Which, if I can jump in here, I think the question of what can we learn from Microsoft is also a valid question in general in the sense of there are a couple of takeaways from Microsoft that I think can be agreed to be incredibly relevant, one of which is how long antitrust takes. And particularly in a dynamic market like technology that we can see huge shifts in the way technology operates in that time period — that these cases often take over a decade.
So while Microsoft was dealing with the antitrust concerns in the browser wars, we were also seeing the rise of things like mobile computing. We were seeing the app economy come on. And as was mentioned, a lot of these competitors came on while that case was ongoing. So we certainly have seen that, at times, innovation itself can be the best competition policy.
And even when you think about something like the AT&T breakup, the reason a lot of us don’t think about our long distance calling service now is not because we have a lot more long distance calling service providers to choose from; it’s in part because of the technological revolution that went on where, now, most of us are using things like voice over internet protocol or mobile service instead of traditional landline technology.
Hal Singer: Let me just put my spin on Microsoft, and I want to push back on Tom’s suggestion that that offers a pathway for plaintiffs to use antitrust in the year 2020 to stop conduct that only generates an innovation harm. I’ve got this quote for you Tom. I’m sure you’ve read the D.C. Court of Appeals decision in Microsoft, yes? And they poo-pooed the injunctive relief — structural relief for the plaintiff’s inability to demonstrate anticompetitive effects.
And then, when they went to look at the product choice — if I could read you one line from the decision, it says, “The plaintiff bears the burden not only of rebutting a proper justification but also of demonstrating that the anticompetitive effect of the challenge action outweighs it. In the District court, plaintiffs appear to have done neither, let alone both. In any event, upon appeal plaintiffs offer no rebuttal whatsoever. Accordingly, Microsoft may not be held liable for this aspect of its product design.”
And I will translate that into English. What they’re saying is that if a plaintiff cannot come in and quantify a harm and connect it directly in a causal way to a restraint that the court is not going to grant relief. And so I would submit — and this is back in the ‘90s. And the landscape, Tom, has gotten much more hostile towards plaintiffs in the intervening 20 years. So I would advise strongly to a client not to bring a case if the only harm is an innovation harm. And I’d also advise not to bring a case if the only harm is a quality harm.
Thomas Hazlett: Well, I’m happy to take your conclusion. They shouldn’t have brought the case.
Hal Singer: I know. Your thesis was that antitrust captures this, and it doesn’t.
Thomas Hazlett: No, there’s no question that the browser war was efficient. It was hugely efficient. And Netscape got into that market and got on tens of millions of Windows computers with no trouble whatsoever.
Now, they did get a reaction, and they got a much better — Internet Explorer by the time it got to 3.0 — that was the joke about Microsoft. 1.0 was terrible, and 2.0 was on its way. And then 3.0 would be the killer app. Anyway, they got a much better product. Prices had to go down. Netscape was trying to charge $50 a copy for its free software. It became free again. And the world got to the internet. And it was tremendously productive.
That was lost in the case. Judge Jackson got it wrong. And in fact, you’re saying that the appellate court says you can’t bring a case like this. Well, they did bring a case, and they won the case. And they got remedies. They got protocols that had to be fixed and overseen by the court and the special master. And that was a ten-year regime that said you cannot have Microsoft blocking innovation that comes to the desktop. And that was supervised by the court.
Now, certainly we’re all going to argue about particular outcomes and remedies. There was a breakup that actually Judge Jackson wanted to have a breakup. The Department of Justice only gave him a two-way breakup. He wanted a three-way breakup. Then the D.C. Circuit throughout the breakup is not acceptable based upon the facts of the case. And so that’s the way antitrust works, and I think it was a big problem.
And during this time, you have to remember that Microsoft was not discouraged from trying to take over the cable set top box business. They actually made a large investment into Comcast to try to dominate with their software the access to cable TV, which was thought to be a big market and a big play. And they tried to get — I mean, they bought Symbian from Nokia, the biggest software ecosystem. They ended up writing that off for $7 billion as it went to zero in about two years. And they lost out to Apple and Google on that.
And that’s not — that has nothing to do with the antitrust case. They were competing in those markets, and they just were a big behemoth that took their best shot. I want them to take their best shot. And it came out just right.
So I’m perfectly happy with how it came out in the aftermath of that case, but we did get a lot of competition. But the case itself — the remedies that were imposed by the court were not effective. And that’s no surprise at all.
I should mention that if you do go back just 10 or 12 years and even in more recent history, the complaints on the cable TV market, which you know is a good market to study. It’s a parallel one in some respects to broadband — the cable TV market was thought to be controlled by cable operators. And that was remedied to some extent by intermodal competition, allowing the telecos in and then allowing mobile in with more spectrum allocations and more competition there.
But the regulators thought and really pursued rules to open up the cable set top box. They thought that by allowing people to go to Best Buy, or Circuit City in the day, and pick up their own cable box we were going to have third party vendors supplying us our cable. And they had all kinds of rules about this. And, Hal, you probably know about this very well.
But that was just a complete fool’s errand. It went in the wrong direction. It didn’t do anything. And in fact, it was video streaming over broadband — broadband systems created without regulatory mandates or regulatory interventions. Now, there was, of course, the issue of open access and net neutrality. That did nothing to further the investments in broadband. It probably had a negative effect.
And today, now we have, you know, built by cable operators and telephone companies who were supposed to be the incumbents in the market — we have this tremendous access to literally thousands of channels of programming. It depends on how you count. But we have this opening of the market that is not the product of antitrust. Antitrust did nothing to help this. That plus the regulatory effort seemed to have, if anything, stymied that movement — that disruptive movement.
Hal Singer: Well, maybe we should steer back toward the conduct of the modern-day platforms and step away from this fascinating history lesson for a bit. But I think that, in addition to the self-preferencing that soaked up a lot of time during the hearing, we also heard—and, Tom, you mentioned it—this question of cloning. And I like to frame it a little differently. I agree with you, Tom, that we’re not going to stop people from cloning, and you could even argue that cloning has consumer benefits. The concern that I have are two strategies that are related to cloning and that make cloning available and profitable.
And the first is misappropriation of data from a vendor who’s operating on your platform. And we heard this — we know about famous cases involving Amazon, of course. But Facebook does something similar as well. And I think that, again, I would say that this kind of conduct is misappropriation, which is related to but different from cloning. Misappropriation of the data gives you the ability to clone in a way that some outside party could never achieve.
And I would say that, number one, this is, again, outside of the scope of antitrust purview. And number two, we have regulatory templates, again, in telecom that we could look to for how to solve it. Tom, you’re old enough, as am I. We cut our teeth in the telecom world with the CPNI rules of the FCC that banned AT&T from stealing information from third party providers I think it was of security monitoring — home monitoring tools, so that AT&T would not be able to leverage its power from the network into these peripheral markets. So maybe you have some data you can point me to as to how that destroyed AT&T’s network and discouraged them from investing in both the core and in the periphery.
Jennifer Huddleston: So Hal, I know you —
Thomas Hazlett: Well, you — go ahead.
Jennifer Huddleston: — asked Tom, but if I can jump in here for a second.
Hal Singer: Jump in.
Jennifer Huddleston: I wanted to bring up this question about Amazon and you called it cloning. But largely, my understanding is that usually this argument is made as it relates to private label goods.
Hal Singer: Right.
Jennifer Huddleston: And in the retail space, private label goods have been common for quite some time. I mean, you walk into any Walmart, Target, or CVS, and I think many of us appreciate having a generic option as well as a name brand option and that many consumers appreciate those cost savings that they offer. And when it comes to the retail figures here, there — the retail market that Amazon’s competing in is quite wide. So I would be concerned about any regulation that would discourage the potential of private label goods, such as generics, being available given that they are hugely beneficial.
Hal Singer: So we don’t want to discourage private label, right? We don’t want to discourage private label. What we want to discourage is two strategies that make the playing field unlevel. Number one is the misappropriation of data that a vendor has to turn over to Amazon as a condition of operating on its platform. That’s number one.
And number two, we want to prevent Amazon from self-preferencing, that is being able to use the power of its platform to steer customers to its own private label product over a rival’s. The mere fact that Amazon puts its foot in the edge — and I have to say the same thing about Comcast in content. I don’t care. In fact, there could be good things that Amazon can bring to the edge. So if Amazon wants to do a private label, fine. The offense that I think is escaping antitrust scrutiny is the misappropriation of the data, number one, and, number two, the self-preferencing.
Thomas Hazlett: Well, hang on a second.
Hal Singer: Go ahead.
Thomas Hazlett: I agreed with what you said to begin with. It’s not an antitrust issue. Okay. Misappropriation is misappropriation. That’s a contract issue. And if there is a sharing of data by contract, that’s permissible, and then you can move to an antitrust regime if you say that there’s some kind of anticompetitive effect — intent and effect of the contract. But no, if you’re misappropriating data, of course that’s a contract issue. That’s perhaps a regulatory enforcement issue, something the Federal Trade Commission would be very interested in. And so that’s correct.
Now, in terms of the antitrust issue, let me just go straight to the blunt facts. And I don’t know. Bezos at the hearing last week did bring up something related to this. I don’t know why they don’t push it more.
When Amazon came on the scene in the mid- to late ‘90s, they started 100 percent vertically integrated. They were all Amazon products. And then, they discovered they could share the efficiencies of their network with other vendors and make a bigger, better platform and probably do better on a business. Of course, they’re taking negative profit, so to speak, during this time.
Now, the fact is that they’re not — it’s not an Amazon platform. It’s now 60 percent third party, 40 percent Amazon products. It’s declining. It’s monotonically declining, essentially, from 1997. And they are, of course, making a fortune extending their platform to third party vendors. And they have, as Bezos pointed out, 1.7 million small and medium sized businesses selling products.
Now, along the way, they compete with nonvertically integrated platforms like eBay that — I can’t give you all the comparisons, but I know as of about 2004 eBay was three times the size in terms of market cap — at least three times the size of Amazon. So it wasn’t as if Amazon just took over because some antitrust. And today, if you’re a vendor and you think you’re getting a bad deal, there are lots of other platforms, including eBay. You might say that, well, we don’t want to be off of Amazon, but that’s the market test.
Amazon provides such efficiency for these third-party vendors they are getting increasing market share. They have, in terms of the third-party revenues, passed up eBay. It’s not — you wouldn’t say that they’re completely dominate against eBay, or they’re emerging Shopify and other services that come on. Etsy is in that space to a great extent.
And of course Walmart — Walmart, a former Amazon acquisition, is now competing very effectively in terms of rising market share in the ecommerce space. They’re trying to figure out the benefits of the vertical integration between ecommerce and bricks and mortar. And they’ve done very well, so far, with that — with the grocery side of the business.
And that’s been very important, particularly in the last three years since the acquisition of Whole Foods by Amazon. It has not gone the way it was predicted to go by the new Brandeisians that said that that would be a disaster, and monopoly would soon result in groceries. It’s gone the other way that the non-Amazon market shares are doing well. And in fact, there are other companies that are — Instacart and other entrants into that grocery business — online grocery business are alive and well.
But I want all of them to be scared. I want all of them to see Amazon as a threat. And I want those third-party vendors to have a choice to choose the contractual structure of Amazon versus others. And of course, if there are violations that merit regulatory scrutiny, then that’s an existing framework that we have and presumably we’ll continue to have. And it does not call for antitrust change.
Hal Singer: Ah, where to begin? Jennifer, did you want to say something? I don’t want to monopolize, speaking of monopolies.
Jennifer Huddleston: Just to pick up on the kind of self-preferencing question, I think the other side of that, though, is what would be the regulatory intervention there? Because there are two situations that I could see where trying to regulate against self-preferencing could also raise it’s own problems, one of them being the sense of the government dictating how search results have to appear. And that could raise concerns around particularly speech issues in that regard.
And the second is, again, to the sense that this does not just exist in technology but, again, trying to apply that same standard to your local Walmart or your local grocery store of are you then as a result of these regulations have dictated how nice those generics can look on the shelf or where they can be and if the store brand is eye level versus the one that it’s considered to be a clone of is at a lower level — is that — to me, there’s a lot of concerns there of, even if one feels that’s a problem, what would the structural remedies look like in a way that wouldn’t create greater concerns when it comes to free market competition.
Hal Singer: So let me just tell you I’m peddling a variation of what are called the program carriage rules from the Cable Act. There was a close cousin called program access rules, and those were challenged under First Amendment speech issues. And those challenges failed. I believe the cases are called Turner.
But let me tell you as to how the regime would operate if I got to write it — and you should know that that’s a very low probability event. But I would begin with the template that the FCC was instructed to use by Congress. That is you create a venue or a forum in which complaining independents can bring discrimination cases in which they, the plaintiff — the complainant bears the burden of having to show that they had a similarly situated product and that they were disappeared or given inferior treatment on the basis of their lack of affiliation and not some other business justification and then allow the respondent to offer efficiencies.
This is how all the program carriage or discrimination complaints have been adjudicated at the FCC. You could probably count them on two hands. There’s been about seven. And that’s how it would go. I think that that’s the least invasive approach to policing self-preferencing, and you can do it in a way that should not discourage innovation or investment by the platforms, either in the core or the periphery.
Thomas Hazlett: I’ll just note — I know this is a tech thing. Hal did mention the Turner cases. Yeah. In 1997 or ’98, the Supreme Court did find must carry — the must carry rules passed in the ’92 act were terrible. And they were protectionist for broadcasters. The broadcasters got free carriage on the cable TV systems and their local markets.
And there’s a wonderful dissent. There was a 5-4 opinion, and the dissent was written by Sandra Day O’Connor, beautiful dissent. She’s right. The majority was wrong. That’s my opinion, of course. But that was a First Amendment violation to protect broadcaster who were one set of speakers against cable TV operators.
And by the way, I do talk about this in numerous places, including my 2017 book on spectrum allocation policy. This was a disaster for consumers and the consumer welfare. And in fact, home shopping had its biggest day in years the day that surprise opinion in the Supreme Court was announced. It would thought it would be overturned on First Amendment grounds.
But the real ones to benefit were the home shopping TV broadcast facilities, and that was a big, big boom for them. It didn’t help really anybody else. And that’s the kind of protectionist stuff you will introduce into the law if you’re going to pick and choose how these business structures work. You will get the rent seeking, and you will get these kinds of very perverse outcomes.
Hal Singer: Right. But the program access, whether you think they were stupid or brilliant, the Court did not find that they violated any kind of speech rights of the cable operators. Is that correct?
Thomas Hazlett: Well, no. They did find they violated some, but they had a new standard. And they kind of messed up what the strict scrutiny standard was about. As I say, Sandra Day O’Connor got it right. She had three votes with her, including Ginsberg and then two conservatives. So it was an interesting opinion and result. But anyway, we should get back, I guess, to big tech.
Hal Singer: Okay. Good.
Colton Graub: All right. Well, we should probably open it up to audience questions right now just so we can start getting those filtered in. All right. We’re going to our first question now.
John Shu: Hi, it’s John Shu in California. Thanks very much for your presentation today. Full disclosure, I was actually seconded to Judge Jackson’s chambers during the Microsoft trial.
Thomas Hazlett: I love it.
John Shu: Yeah. Well, the running joke was that Judge Jackson’s idea of high tech was a yellow color legal pad instead of a white one, but he was a great judge, a great guy, and was, for me, as a very young person, it was a great experience at that time, especially to watch David Boies in action.
Thomas Hazlett: Yeah. I got in the courtroom one day to watch David Boies. That was something.
John Shu: Yeah. And especially given his dyslexia, just amazing his powers of recall. My question is to draw a parallel with the Microsoft case. I remember during the congressional hearings that Scott McNealy from Sun, he asked everybody in the hearing room and the congress people, “How many of you use Windows?” And almost everybody raised their hand. And he said, “That is the definition of a monopoly.”
And I think today if you were to say, “How many of you use Google as opposed to Bing or DuckDuckGo, or how many of you use Twitter instead of something else — Trilla or whatever or Facebook instead of” — well, I mean, even Google Plus had to die from Facebook. So I think if you were to ask the McNealy question you’d have an awful lot of hands up for Google instead of Bing or DuckDuckGo, etc., etc. And that was a very powerful moment in persuading the government to continue on with Microsoft. And I’d like to hear your thoughts on that parallel today with big tech, so to speak.
Hal Singer: I think that the issue that you raise, if I could kind of twist it into some kind of antitrust dorky question or related question, is how would market power be established in a hypothetical antitrust case against one of the platforms? Is it okay if I do that to it instead, John? And I think that there are two approaches that plaintiffs will employee in an antitrust court.
One is called direct evidence. And as the name suggests is can you bring evidence to bear that speaks directly to this hypothetical monopolist ability to either raise prices over competitive levels and restrict rivals, or if you’re talking in a monopsony case, this kind of not so hypothetical monopsonist from pushing down prices to input providers below competitive levels or to restrict output or to exclude rivals. And I think that — and then, of course, after the direct approaches there are indirect approaches, which entail defining a relevant market and then showing high market shares and high entry barriers.
I think there’s some pretty good evidence — direct evidence on, say, Amazon — not to pick on Amazon — but Amazon’s power vis-à-vis merchants. And you saw from this Institute of Local Reliance — study of Local Reliance that I mentioned earlier found that Amazon has been able to raise its fees to third party merchants from something on the order of 19 to 30 percent. Tom likes to point out that more and more revenue is going to the third-party side. That’s true, but within that bucket, more and more of the revenue is moving to Amazon, that is Amazon is exercising its monopsony power.
And I think that it would be pretty straightforward to argue and to show that Amazon would not have been able to raise its fees from 19 to 30 percent if there was so much defection from the Amazon platform as to render that effectively a price decrease — payment decrease to the input providers unprofitable. So that’s how I would argue the case, and I think that there could be — there is, in fact, one case against Amazon that I know of right now concerning its most favored nation status. But I think that what you said, John, just in terms of the intuition, does everybody use it? Of course everybody uses it.
So I don’t think that these cases are going to rise and fall over whether or not the platforms have market power. Certainly, they have market power. The question, to me, where the rubber is going to meet the road is whether the plaintiff would be able to establish that the exclusionary conduct that’s being challenged can be directly connected to a harm that is cognizable under the current antitrust law. That, to me, is the more frightening part of the case or the challenging part of the case I should say.
Jennifer Huddleston: Well, I’m going to push back a little bit against the everybody uses it, at least in some cases. And I think particularly when it comes to social media, this is a great way of showing actually that the market a lot of times is bigger than we may think it is, particularly when you’re looking at where the market is heading in social media. So if you ask that question of how many people in the room use Facebook, actually according to Pew research it’s about seven in ten adults, which means a third of the room roughly would not be using Facebook.
If you get younger — if you look at — I’m a millennial, and I now have to admit that there’s a generation behind me that’s Gen Z and has their own social media habits and whatnot. And they’re using other platforms. That’s where you’re seeing Tik Tok—and Tik Tok is a whole other conversation beyond the scope of this call—but also things like Snap Chat or various other platforms instead of what we may think of as the largest social media platforms — and even things like Facebook versus Twitter. And people are using these platforms in different ways. So what you use one platform for and what somebody else uses another platform for may mean that they’re considering completely different alternatives in these scenarios.
So I do think market definition matters, but I think it also very much matters in terms of really considering what the alternatives are. The same thing when we look at the retail market in Amazon of how broadly are you going to — or narrowly are you going to define the retail market and making sure that that definition is used in a way that appropriately considers the reality of competition in this space.
Thomas Hazlett: I’ll say a couple of things about, yeah, does everybody use it. I mean, that’s the market share test. And you can make some assertions about the monopoly. They’re pretty vague in terms of the implications. And everybody knows that a monopoly is not illegal.
I mean, that’s been in a lot of antitrust opinions, and it’s anticompetitive behavior. And certainly, Google has not done the search market share — even if it’s 100 percent, they haven’t gotten there through mergers, which would not be allowed presumably. But they’ve gotten there because, as all of us remember, way back about the year 2000 when we first got Google Search we thought, wow, this thing works. It really was an amazing improvement over the existing search engines from Ink to Me and Yahoo and so forth.
And it’s been a great product, and it continues to improve in its press by competitors. And they’re competing for that big market. And that’s driving the innovation and the competition. And it doesn’t mean that they win. And of course, we see through vertical integration Google’s tried a lot of things that don’t win. In fact, almost everything in terms of revenue has not won, beyond Google Search. Look at Google Plus. That was their attack on Facebook. That really was quite a flaw. And we really want —
Hal Singer: Proving the moat around Facebook is insurmountable, right, Tom? Go ahead.
Thomas Hazlett: Well, is it? Really? You don’t understand, do you —
Hal Singer: Well, it may not have been had they not bought out all their up and coming challengers.
Thomas Hazlett: We talked about that. No, they didn’t buy them out. They snapped them.
Hal Singer: Yeah. They did. There’s been hundreds of acquisitions in this space. When you said they didn’t grow their way through mergers, I nearly spit out my water. But should we go to —
Thomas Hazlett: Google Search. I said Google Search did not go there through mergers.
Hal Singer: I know, but they took out rival platforms like YouTube.
Thomas Hazlett: Let me just point one thing out. Raising your price is not evidence of market power. That is not evidence. Hal, I look forward to the next antitrust case we’re on opposing sides when you make that argument. That is not what he’s saying.
Hal Singer: Oh, I agree. Tom, I agree that the mere fact that they push it from 19 to the 30 in and of itself is not proof of monopsony power. You’d need more. But I think you have a nice natural experiment to exploit there because that was a not so hypothetical monopsonist pushing down the payments to the input providers. And the question is, if that push was not met with sufficient defection, you can infer that it was profitable. And therefore, you could infer that they have monopsony power. So you’re right —
Thomas Hazlett: Yeah. You’ve got that mixed up with a merger case analysis.
Hal Singer: Well, that’s unfortunately where we have to go to. We have to go to the horizontal merger guidelines for market definition.
Thomas Hazlett: No, no, no. We all know that Amazon and many other companies, including Microsoft, which free software and all kinds of stuff, you do penetration pricing. You establish a market. You get a platform, and then you try to figure out where the remedies are coming from. And at some point, you’re going to have price increases that are your long run goal — some kind of revenue source.
And this is very standard. And the competition to create the platform is what is driving the innovation. So that has to be taken in that entire context. To say that when you go from one price to another, you have to show some critical loss — that is not the way these markets are dubbed competitive versus monopolistic.
Colton Graub: Well, while I’m loving this back and forth, we have a couple more questions we should get to —
Hal Singer: Yeah. Let’s go. Let’s do more questions.
Colton Graub: — before we end the call. So I’m going to the next one now.
Larry White: Hi, my name’s Larry White. I live in Ankara, Turkey, but I’m actually a Rhode Island resident. And Cicilline is my representative. I was wondering if you had any opinions with regards to how he’s conducting the hearings. I apologize if I missed some of this because twice I was kicked out and had to redial in. But I’d be interested in your observations in terms of his effectiveness with regards to pressing the tech giants. Thank you.
Hal Singer: I can go if that’s okay. I mean, I think he’s been masterful. And I think that the way that he conducted the cross examination of the CEOs was really skilled. He wasn’t the only one. There were a lot of skilled people up there. But I think that probably one of the key moves that he did was bring on Lina Khan, who has likely been one of the intellectual lights behind this larger antimonopoly movement. So I’ve been impressed, and I’m anxious to see the report that comes out and see what kind of proposals — concrete legislative proposals he has in mind.
Jennifer Huddleston: I get concerned that the antitrust hearings in general are a part of a broader tech-lash. While we did see some questions that were relevant to antitrust in the last hearing, we also saw a lot of questions that were related to policy issues that would not be solved at all in regards to antitrust concerns. And I also sometimes worry that there is already a conclusion, and what we really need is a principled approach that is thoroughly examining these issues with the standard that they should be examining.
Thomas Hazlett: I’m not a great source on this, but I will site something that somebody who is a good source, Ben Thompson from Stratechery — I don’t know if you’re familiar with — he’s sort of a tech guru and an analyst and so forth. And he’s a pretty keen judge. He thinks the hearings, even though sort of the CNBC report is that Congress didn’t lay a glove on big tech and the market shrugged it off. And people complain that hearings are speeches by Congressmen rather than investigative inquiries, which is just true in general.
But the issues were fleshed out. And the Democrats brought their A game to say that we are not in a negotiation mood. This is for real, and we’re going to regulate. And the Republicans did not stop that train, but they did lay down a political marker. This is Thompson’s observation that they’re looking to big tech to do something about the content issues — discrimination against conservative viewpoints. So that’s sort of the tableau of the playing field. If the hearings crystalize that and let the rest of us see it, I suppose that that is a public service.
Colton Graub: All right. Thank you all. We’re going to our next question right now.
Laura Peterson: Hi and thanks for your presentation. I’m Laura Peterson, an independent attorney. And I have some questions about the concern voiced especially by Mr. Singer about self-preferencing. I think Tom made the excellent point that the concern with self-preferencing or with platforms steering customers to their own product is often linked with a concern about misappropriation of data and the further point that Tom made that’s a very cogent one, I think, is that misappropriation of data can be handled perhaps better by contract law than by antitrust law.
But I also question the virtual consensus that self-preferencing is a noxious sort of thing. Might self-preferencing not be appropriate or understandable and even efficient if it means that platforms develop generic products that offer greater consumer choice, perhaps at a lower price, perhaps not at better quality—but that could also be the case—and that self-preferencing, while it may pose harms to certain competitors, may yet bring about net consumer benefits and that there should be some incentive or reward for the platform owner who brings about that system of benefits? There should be some return on the platform owner’s investment because that does net, arguably, increase consumer welfare. Thank you.
Hal Singer: Can I take that one, or, Tom, do you want it? She said your comments were brilliant like three times, so maybe you should take that one first.
Thomas Hazlett: Well, I’m sending her my Venmo payment right now. I’ll be right with you. You go first.
Hal Singer: I want to push back on a point that you made, Tom, about that you think that the misappropriation is covered somewhere else under the law. You should know that the merchants are forced to wave their legal rights as a condition of coming on to the platform by signing these binding arbitration agreements. So it’s like the wild, wild west where Amazon is going to be the arbiter — or how should I say — they’re going to be basically their own private court system to resolve any kind of dispute. So I would push back on the notion that there’s something right now outside of antitrust that could help. I think that Congress could clear this up by giving a forum for merchants to bring complaints relating to either misappropriation or self-preferencing.
Now, on the question of could there be good self-preferencing, the answer is, of course, yes. And that’s why I’m not advocating for a flat ban on self-preferencing. We watch self-preferencing we allow self-preferencing to occur in the cable space. The only episodes where it’s knocked down is when an independent steps forward and is able to show that they were disadvantaged on the basis of their lack of affiliation and that they were materially impaired in their ability to compete as a result. And then, of course, there’s an opportunity for the respondent to show efficiency justifications.
Just in the case of Yelp and Google, for example, which I think is a pretty clear case where self-preferencing wasn’t good by the consumer, there are papers — studies that show—including by a Harvard economist—that the quality of the content went down when Google moved itself up the rankings. And the way that this was tested was by measuring what is called the click-through rate for the Google affiliated content versus what would have occurred in the absence of the self-preferencing. And when these experimental guinea pigs were allowed to go to the independent or go to Google, it became clear that there was a quality degradation.
In other words, Google was sacrificing quality in order to prop up its affiliated content arm. And this is the kind of stuff that economists tend to worry about particularly, not just because of the short run harms, but also these long run innovation harms that I think, unfortunately, are going to escape antitrust scrutiny.
Thomas Hazlett: Yeah. Well, with respect to the misappropriation of data, I would zero in on your use of the — your incorrect use of the term “forced.” Amazon’s not forcing vendors to wave their rights. This is a contract — there is of course going to be a contract. These are partners in retail services. And the third-party vendors come to the platform, and they say, “What are your terms and conditions?” And Amazon has great incentives to appeal the third-party vendors with terms and conditions that are good enough to get 1.7 million businesses to cooperate with them. And they do.
Hal Singer: No, Tom, once Amazon has the power, they’re forcing those contracts down their throat. And you have zero ability to change a contract if you’re a merchant. The merchants are dependent on Amazon.
Thomas Hazlett: I have zero ability to walk into Chipotle and change my contract with Chipotle either.
Hal Singer: I know, but you have other restaurants you can go to. There’s not too many other commerce platforms.
Jennifer Huddleston: And the merchants have other third-party platforms they can go to.
Hal Singer: Not really.
Jennifer Huddleston: This was part of our earlier conversation.
Thomas Hazlett: They have websites. They have Shopify. I spent some time online going to the websites and blogs that cater to third-party vendors. And they do the entire listing, and they update them quite regularly telling people what’s better — eBay versus Amazon versus Shopify or some other — or Etsy. And of course, terms and conditions always come into this and how much customer service there is.
In fact, if you read those, you see that Amazon is very tough on third-party vendors. Why? Because they’re constantly trying to buck up the brand name and the platform reputation amongst customers. And eBay’s a little lighter. And Etsy’s a little lighter yet.
So these kinds of margins are a subject for competition. And that’s why we want to let that go. That’s perfectly reasonable. And in fact, it’s totally efficient in terms of having that play out in the marketplace. And that’s why you see the market share for third party in general going up for Amazon, but you get entry — and we’ve gotten a lot of entry recently. And of course, we have even these major entrants, which are called Walmart and Target. And we have some new players as well.
But the fact is you can’t say they’re forced any more than people are forced to engage in any other contractual terms. The antitrust issue is just not playing out the way it’s argued that there’s an appropriation in general by Amazon because Amazon, as you noted, is making a lot more from being a service provider offering a really popular platform that consumers go. When people who are Amazon Prime subscribers and then Amazon users — when they want something, they don’t bother looking at advertising.
They don’t bother shopping around on the internet. That is true. We go right to Amazon and search and see what the prices are. And we trust the prices. And I have to say, yes, I’m a user of Google and Amazon.
And I absolutely do think — and anybody who’s read a biography of the Amazon story — The Everything Store is a particularly good one, although it’s a few years old now. But it’s amazing how they have been relentless about telling consumers, “Come here. We will protect you, and we will give you the best prices and the best selection. And it’s going to work out.” And yes, vendors pay something for that, and they should pay something for that. It’s expensive to establish that credibility with the market.
Hal Singer: Okay. Maybe we should go — Jennifer, did you want to weigh in?
Jennifer Huddleston: I mean, a lot of what Tom just said was what I was going to say, so I’ll just let his statement stand.
Hal Singer: All right. So we’ve established that waving legal rights to submit to Amazon’s whims is a good thing. But let’s go to the next question.
Thomas Hazlett: Well, anybody who has the credit card does that, Hal.
Jennifer Huddleston: Well, I think it’s — I wouldn’t say it’s the waving of legal rights.
Hal Singer: It’s wrong in those cases, too. Forced arbitration is wrong in those cases, too. We’re going to fix that in the next Congress, but let’s go on.
Jennifer Huddleston: But forced arbitration, though, is not an antitrust issue I would say.
Hal Singer: But Jennifer, they’re also waving their rights, for example, to join a class action antitrust case against Amazon. So if you feel like you’re the victim of an antitrust offense, you’ve got to go it alone. But why don’t we go to the next —
Thomas Hazlett: So why don’t all the vendors go to eBay?
Hal Singer: Because you have these network effects. It’d be a massive coordination problem to get the consumers to move in mass from one platform to the next.
Thomas Hazlett: Right. But eBay is used —
Hal Singer: That’s what Amazon is counting on.
Thomas Hazlett: eBay started much larger. They’re still huge. They still have network advantages. And yet, people are going on the third party — they’re going to Amazon because Amazon is offering something that eBay doesn’t. That’s according to your market share shift.
Hal Singer: Okay. Can we go to the next question?
Colton Graub: Sure. We have one more question. We’re a little bit over time, so, yes, we should go to the next one now.
Caller 4: Hi, thank you for the very interesting discussion. I guess I shouldn’t be surprised that all the focus is on the platforms that involve shopping. But to be fair, if you look around now that Amazon is — people saying, well, it’s going to be such market power. There are some very large competitors. There’s a large incentive for people to take it on. There was Walmart. Ali Baba is very slowly starting to move over from China into the U.S. And I think that’ll — Shopify. There’s a lot of platforms.
And to be fair, I think about the impact. Maybe you’ll pay a little bit more or maybe, you know, you will lose some of your rights as far as pursuing legal claims in the short run on Amazon. But if there are other platforms there to keep them honest, that, I think, is a problem that can work itself out.
I’m more concerned about the monopoly and network effect on the social media side. If all the politicians are on Twitter, if all the journalists — if all the policy people are on Twitter, if I’m a low person or a little lawyer like me and you want to engage those people in real time, Twitter’s pretty much the only place you go. And what we’ve discovered is, if you’re, for example, a critic of abortion and you point out to advocates of abortion that, by their standards of harm, which justify whatever attack on — again, justify abortion, if you point out to them that, say, that same standard of harm would allow many kinds of murder, that’s the kind of thing that if you make that comment on the Twitter platform someone can report you and, in fact, get you banned. And I’ve had that experience.
So I’m concerned that — the shopping impact is you’re going to pay 5 percent more, 10 percent more maybe if you’re a merchant. But as far as social media, everyone is on Twitter. If the Federalist is on Twitter or Google doesn’t allow its articles to be searched because it had a comment section that people posted rude things on, that can have a very immediate impact on our political speech, the results of the political election, which don’t require years to play out.
It could, at the margin, influence the votes, influences the folks who are allowed to speak. And in that sense, I think the network affiliation on social media is also a problem because I can go and shop somewhere else. I don’t need all my friends to come with me. Maybe I pay a little more. But if there’s network effects to engaging political discussion on social media and I go somewhere else on a blog, no one’s going to read that. I only have one public square.
I would suggest that if you define the market correctly, which is ability for little people to engage with politically powerful people in real time for everyone to see without everybody’s permission being required, Twitter has a monopoly on that.
Jennifer Huddleston: Actually, I would argue that there is a dynamic amount of competition when it comes to online user generated content. Twitter is one place, but Facebook is another. YouTube is another. We’ve seen small sites start to emerge in part out of some people that have expressed that they don’t like some of the decisions that have been made — things like Parler and whatnot. And what we’ve seen is that in a lot of cases, when it comes to content, these platforms make different choices.
We’ve also seen time and time again that content moderation is a very difficult task and that it’s not a task that will be remedied by antitrust enforcement against these platforms. There was a moment in the House hearing last week where Congressman Gaetz asked Google about the removal of a video and then a few minutes later — or later on in the hearing, a Democratic congressman asked Facebook why they had allowed the same video to stay up for so long. So in a lot of cases, the content and the decisions about what to leave up and take down are very disputed about the calls that are being made.
And we’ve seen that really the internet and these platforms have given an explosion to speech of all kinds and that, in fact, this is part of the importance of other laws online, things like Section 230 that are not antitrust issues but that allow platforms to emerge with very low barriers to entry and to carry this user generated content to allow these conversations to continue.
Hal Singer: Well put. Tom, did you want to weigh in on that one?
Thomas Hazlett: Yeah. It’s interesting comments certainly. And the Republicans, as I noted, have really made it clear that this is a big issue, biased online platforms. It’s been a problem for a long time. You go back — I love the Lyndon Johnson tapes from the White House and who he’s dealing with and who he thinks is important. He’s always picking up the phone to call James Reston at the New York Times or Joseph Alsop, who’s at the Washington Post. Once he hit those two, that was it. 200 million other Americans, they’re going to get their news one way or another through those columnists.
And that’s part of the issue of free speech — Cass Sunstein called it the problem of free speech. You do have some concentration. And certainly government policy should be lined up to promote competition to the extent of the law without favoring certain viewpoints. And it’s gotten it wrong.
We have to be very careful on this. The Fairness Doctrine and broadcast regulations since 1927, radio and then television broadcasting, was not successful in terms of promoting viewpoints and openness to the public. And some of us have written a lot about that. So we have to be very careful that we know what we’re doing here in opening up markets.
And competition really is operative to some degree. We want to make it more operative if we can do that. And I hope we can. And that process is under way. Using antitrust or regulatory interventions is going to be difficult.
By the way, you see this now with Tik Tok being basically assigned for takeover to Microsoft. That may be a First Amendment violation. We’ll just have to see how that plays out. For the government to say platform — speech platforms are going to be owned by this company, not that company, you have to be very careful about that obviously.
Hal Singer: And Jennifer, I’m going to agree with you to close it up on this last one. I think we should go pretty easy in terms of intervening with respect to viewpoint discrimination. These are private platforms. And if you feel that some doctor is spewing dangerous information about injecting yourself with demon blood or something in the middle of a pandemic and you want to — you think it’s going to endanger the health of your viewers, I think that you ought to be able to take that down. It’s your platform.
To the extent that this is a competition issue, if we could create or breath life into other social media platforms, for example, by spinning off Instagram and WhatsApp from Facebook, that might help. But I’m skeptical that more competition in the social media space is going to address the content moderation issues that the caller raised.
Thomas Hazlett: Yeah. I just add, Hal, I think Twitter and Facebook do have different approaches, not radically different, but they’re different. And I think obviously that that’s good to have different options play out like that and far preferable to assuming that some government agency is going to get it right and be able to fix it and not do extraordinary damage along the way.
Jennifer Huddleston: And to echo what Tom said earlier, I think you only have to look to the history of the Fairness Doctrine to see how this could run amiss very quickly.
Colton Graub: All right. Well, it’s great to end on a point of agreement. We appreciate all of you for taking the time today to join us and for staying for the questions. We appreciate Tom, Hal, and Jennifer for fielding all them and for the great discussion. We welcome listener feedback by email at [email protected] Thank you all for joining us. This concludes today’s call.