The Flaws in the Latest Proposal to Break Up Big Tech

A lot has been written about Senator Warren’s proposal to break up tech platforms. Two aspects are worth noting.

First, Sen. Warren essentially calls for a return to the regulatory structure of “the Gilded Age, [when] waves of mergers led to the creation of some of the biggest companies in American history — from Standard Oil and JPMorgan to the railroads and AT&T.” But the era’s efforts to pull apart companies hardly make an exemplary record.

The American Tobacco case and the resulting breakup of the company serves as a useful example. Regulators thought they could easily undo a set of mergers, which had created American Tobacco a couple of years before. But separating out the one company into its constituent three was doomed to fail because the company had tightly integrated all of its business processes. The protracted and messy eight-month breakup ultimately did little to change consumer prices or the value that farmers got for their tobacco leaves, according to historian Allan M. Brandt. The moral of the American Tobacco fable is simple: Breaking up tech companies would be a difficult and technically messy process.

Further, government intervention often wasn’t the decisive factor in limiting the power of companies during this time, and it often itself created the monopolies. In the history of oil in the United States, the discovery of the Spindletop oil field in Texas is typically cited as being more important than antitrust proceedings against Standard Oil. This event created both Texaco and Gulf Oil, which shifted the power away from Standard. As for AT&T, it got a government-granted monopoly in 1913 that was later pulled apart by the Department of Justice.

Second, the most interesting policy change in Warren’s plan is one that hasn’t received a lot of attention. In addition to breaking up the biggest platforms, Warren wants all platforms, regardless of their size, to engage in “fair, reasonable, and nondiscriminatory dealing with users.” The need to determine what these terms mean in this context would give a government agency the impetus to try to define them as broadly as possible.

There is precedent for these concepts, however. The idea that companies must be fair, reasonable, and nondiscriminatory is one that stretches back centuries. Common carriage has its roots in ancient Rome and its modern application can be seen in the telecommunications space. The Federal Communications Commission has regulated radio waves and telephone lines for almost 100 years. Analysis of these legal regimes, however, finds that the laws are often inconsistently applied and often lead to distorted markets. If it were applied to platforms, as Warren wants, the effect would be much of the same.